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EXECUTIVE SUMMARY

Recently, there have been tremendous inquiries about environmental regulations and their impacts on the global supply chain that propagated by activist and NGOs all around the world. In the electronics industry, this has been hooked to a series of new regulations that address the hazardous materials built into products such as RoHS (Restriction on Hazardous Substances) and the take-back of items from consumers at the end of their useful life such as WEEE (Waste Electrical and Electronic Equipment). These issues have radically enlightened some of the giant companies and they had begun to instill the concept of global citizenship for the betterment of all.

At Hewlett-Packard, global citizenship is an integral part of its critical success factor. HP took into consideration the balance of economic concerns but focuses more on environmental aspects revolving their products design and development, operation management and supply chain, and engaging directly with stakeholders by using technology to benefit people, businesses, society and the environment. These allow them to continuously obtain competitive edge over other rivals by accepting and adapting to these challenges and offering the best solutions for innovation and growth.

Therefore, this paper is intended to discuss the arising issues of Green Supply Chain Management and Reverse Logistics in Electronic Industry by setting HP as an exemplary model in adapting to this revolutionized concept. Along the way, we will discuss on the ultimate electronics supply chain toward which HP is working and identify possible areas for improvement so as to be an explicit blueprint for others to replicate. 1. INTRODUCTION

1. Prolog

Global Citizenship can be defined as a moral and ethical disposition which can guide the understanding of individuals or groups of local and global contexts, and remind them of their relative responsibilities within various communities. This view is exemplified by the Bruntland Commission's report, which stressed the shared destiny on the earth as a whole of the human species and argues that unprecedented form of cooperation among states and a heightened sense of urgency by states will be required to ensure the sustainability of industrial civilization.

According to some accounts, citizenship is motivated by local interests (love of family, communal fairness, self-interest), global interests (a sense of universal equality), and concern for fellow human beings, human rights and human dignity. The key tenets of global citizenship include respect for any and all fellow global citizens, regardless of race, religion or creed and give rise to a universal sympathy beyond the barriers of nationality.

2. Brief History of HP

Bill Hewlett and Dave Packard were former graduates of electrical engineering from Stanford University in 1935. Under fellowship of a past Professor, Frederick Terman, they initiated the idea to form HewlettPackard Company in 1939 which operated from a small garage in Palo Alto during the Great Depression. It was then officially incorporated on August 18, 1947 with initial capital investment of only USD 538.

Their very first financially successful product was a precision audio oscillator, the Model HP200A. Their innovation used a small light bulb as a temperature dependent resistor in a critical portion of the circuit that allowed them to sell it for USD 54 whilst other competitors were selling less stable oscillators for over USD 200. This model evolved through various series and improved designs and continued to sell until at least 1972. It was perhaps the longest-selling basic electronic design of all time.

Now, HP is offering wide ranges of products lines including personal computing devices, enterprise server, printers etc and specializes in developing and manufacturing computing, data storage, and networking hardware, designing software and delivering services. This allow them to reach bigger spectrum of market from households, small-to-medium-sized businesses and enterprises, consumerelectronics and office-supply retailers, software partners and major technology vendors.

1930s: HP was founded by Bill Hewlett and Dave Packard 1940s: HP was incorporated with initial capital investment of USD 538 1950s: HP went public and citizenship objective was established 1960s: HP Core Values established and recognized by employees 1970s: HP started vanpool program and launched HP Standards of Business Conduct 1980s: Product recycling launched internally

1990s: HP Planet Partners and 1st Packaging Management system created 2000s: e-Inclusion Program launched and self-certified to EU Safe Harbor Privacy Principles 2010s: Reduced GHG emissions by 25% and recycled 2 bill pounds of electronics products 1.3 Going Green

Conventionally, most of companies only focus merely on operational excellence, customer intimacy, or product superiority. But, when someone mention about Green Efforts, they would react awkwardly as it is usually associated with higher quality and cost. However, HP had proven the contrary by achieving lesser cost through managing its total supply chain which is again realized in the area of social and environmental responsibility.

HP believed that being socially responsible are actually delivering the least value, while things which look at first like added cost carry the real payback. This concept was actually pioneered by the efforts taken by Toyota in the late 1970s to restructure its total supply chain by integrating vertically backward with their suppliers and to some extent integrate forward with their customers to ensure efficient and effective values being delivered.

HP initiated the DfE Program in 1992 which focuses on three main priorities which are energy efficiency, materials innovation, and design for recyclability. It is done by understanding the total products lifecycle instead of only looking at the manufacturing flow of finish goods towards the customers. This allows HP to plan and have control of the entire supply chain to ensure products purchased by customers that already at the end of their lifecycle could be redelivered back to HP for recycle. Not only that, since the products are designed in such ways easy to be dismantled, it help to reduce the handling cost for segregation of parts into smaller components. Table 1 below, suggests the benefits that HP able to obtain from savings on materials and logistics costs.

|DfE Engineering Goal |

|Environmental Impact

|Cost Reduction

|Reduction in parts, products size, products |Less end-of-life waste, less energy material cost, higher production| |weight |Energy efficiency operating expense | |consumption

|Lower direct

|yield, lower logistics expense

|Reduced greenhouse effect and energy

|Lower end-user lifecycle

|dependency

|Increased product robustness ownership for end-user, | | |landfill

|Longer service life, less material waste to |Lower total cost of

|lower logistics cost in shipping and handling| |Reduced landfill-bound-material flow |Lower logistics cost

|Packaging materials selection | |Bull pack development | |Design for Recycling (DfR) compliance cost, lower | | manufacturing | |

|Reduced landfill-bound-material flow

|Lower logistics cost

|Reduced landfill-bound-material flow, reduced|Lower take-back

|consumption of raw material

|material handling cost, lower

|conversion cost

|Design for Disassembly (DfD) recycling cost | |

|Increase probability of proper dismantling |Reduction in

|and recycling rather than shredding

Table 1: The benefits for designing for the environment 2. LITERATURE AND RESEARCH REVIEW

2.1 Definition of Supply Chain

The supply chain consists of those activities associated with manufacturing from raw material acquisition to final product delivery. Because of the recently changed environmental requirements that affect manufacturing operations and transportation systems, growing attention is given to the development of environment management strategies for supply chains. A green supply chain aims at confining the wastes within the industrial system so as to conserve energy and prevent the dissipation of harmful materials into the environment. With this paper, we compare and contrast the traditional and green supply chains. Moreover, we discuss several important opportunities in green supply chain management in depth, including those in manufacturing, bio-waste, construction, and packaging.

2.2 Green Supply Chain Management

Today, environmental pollution is the main problem which has the potential to lead to the extinction of mankind on earth if not addressed properly. Of the various kinds of pollution, waste pollution is the one which needs immediate attention. Global warming, an effect due to the increase in amounts of the green house gases present in air is the most severe problem mankind is facing at the moment. The amount of carbon dioxide which was found hazards to the global has accelerated increasingly. It was found that a rise in carbon dioxide proportions would lead to an increase in temperature up to 2 degrees centigrade which would result in faster and irrevocable melting of Greenland and Antarctic ice.

The traditional supply chain comprises five parts: raw material, industry, distribution, consumer, and waste. Each of the links in the supply chain can be a reason for pollution, waste, and other hazards to the environment. Regarding raw materials, a company may use environmentally harmful materials such as lead. However, organizations can put pressures on suppliers to use more environmentally friendly materials and processes.

In the distribution process, organizations minimize packaging materials and stress reverse distribution. An organization may encourage end consumers to efficiently use the products by including instructions and suggestions in product manuals. In the waste disposal process, a company must comply with regulations regarding collection and disposal of hazardous materials.

As illustrated in figure 1 below, the green supply chain model shows the various points where wastes occur and opportunities exist to limit waste by reuse, recycling, and remanufacturing. In a green manufacturing environment, the supply chain decisions include the possibility that a process can use certain renewable materials, the ability to utilize reusable or remanufactured materials, and the reduction of wastes. Sarkis [Sarkis, p.399] states that environmentally friendly innovations may best be utilized during the manufacturing stage of the supply chain, as this part is the most internally focused and the organization can more directly see the benefits of implementing environmentally friendly processes. [pic] Figure 1: Functional Model of Environmentally Influenced Supply Chain

Green supply chain management (GSCM) involves traditional supply chain management practices, which integrate environmental criteria, or concerns, into organizational purchasing decision and long term

relationships with suppliers [Gilbert, p.6]. A green supply chains aims at confining the wastes within the industrial system in order to conserve energy and prevent the dissipation of dangerous materials into the environment. It recognizes the disproportionate environmental impact of supply chain processes within an organization.

Conventional and green chains differ in several ways. First, conventional chains often concentrate on economic objectives and values, while green chains give significant considerations to ecological causes. When a conventional chain does take ecological standards into account, it is often limited in its optimization scope. For example, conventional chains merely take into consideration human toxicological effects, leaving out the effects on environment. Furthermore, they often concentrate more on controlling the final product, while allowing negative effects to occur during the production process.

On the other hand, green, integrated, ecologically-optimized supply chains extend the scope not only to human toxicological effects, but also to ecologically negative effects on the natural environment, as well as the entire value-adding process, resulting in low ecological impacts during production. Ecological requirements are considered as key criteria for products and productions, and at the same time the company must assure its economic sustainability by staying competitive and profitable.

The buyer and supplier selection criteria are fundamentally different in conventional and green chains. In conventional chains, the predominant standard is price. In green chains, ecological objective is a part of the supplier selection criteria. Putting these ecological criteria into practice requires careful supplier evaluation, based on long-term oriented relationships. The development of suppliers usually takes a long time and only a very limited number of suppliers meet the defined criteria. Hence, any change of supplier selection cannot be implemented in a green chain as quickly as in a conventional chain.

One of the initial perceptions about introducing green products in the market is that they lead to higher cost of manufacturing compared to conventional ones. However, recent findings showed that innovations and optimal planning can dramatically reduce the costs in most cases. For the cost problems to be managed effectively, the efficiency of the entire supply chain must be evaluated. Compared to conventional chains, which have a large number of conventional materials and suppliers, green chains are relatively inferior in terms of speed and flexibility. Table 2 below summarizes the major differences between the conventional and green supply chain management.

|Characteristics |

|Conventional SCM

|Green SCM

|Objectives and values | |Ecological optimization | | |

|Economic

|Economic and ecological

|High ecological impacts

|Integrated approach

|Low ecological impacts |Price switching suppliers quickly

| |Ecological aspects (and

|Supplier selection criteria price) | | |

|Short-term relationships

|Long-term relationships

|Cost pressure and prices | | |Speed and flexibility

|High cost pressure

|High cost pressure

|Low prices |High

|High prices |Low

| |

Table 2: Differences between Conventional and Green SCM

2.3 Design for Recyclable

The literature points out a few common methods for making the manufacturing stage green: reusing, remanufacturing, and recycling. The primary difference between these processes is the extent to which the characteristics of the product are changed. While the physical characteristics of a material are maintained in reuse, remanufacturing includes some changing of parts or disassembly. Recycling may change the characteristics of the material completely including chemical and physical traits. An organization has to decide which methods to employ depending on the product characteristics [Sarkis, p.400].

Literature present many findings regarding how significant an influence the suppliers could have on the greening of the manufacturing stage in a supply chain. Manufacturers are liable for purchasing products and services that violate environmental standards, but they may not be legally responsible for their suppliers environmental activities. Currently there are few incentives for manufacturers to be concerned with the environmental procedures of their suppliers, moreover, there is new research

pertaining to the connection between suppliers environmental practices and competitive advantages in the supply chain.

Recent environmental management literature has suggested that an informed relationship between supplier and manufacturer can lead to innovative and cost effective end-products. A recent study found that Japanese automakers were operating on productivity twice as that of their American counterparts. The main difference in productivity was attributed to the Japanese organizations lean manufacturing systems, reducing lead-time while at the same time increasing quality [Lewis, p.960]. However, suppliers are generally concerned with cost, quality, and delivery, while environmental safety has been taken with a lower priority. In contrast, manufacturers may list environmental safety and improvement as a major priority. Manufacturing firms may need to consider their own environmental goals, social responsibilities, and reputation to consumers.

Involvement of suppliers in manufacturers plant and manufacturers in suppliers plant helps them to communicate better, build trust, plan effectively and concentrate on each individual process and part to achieve a desired environmental rating for a product. Geffen and Rothenberg [Geffen and Rothenberg, p.184] conclude that the greatest success between supplier and manufacturer was found in firms where suppliers were physically involved in the manufacturers plant and where manufacturers were actively involved in the suppliers plant. Moreover, the study found that manufacturing firms in Taiwan had successfully implemented highly innovative and effective environmental management practice between suppliers and manufacturers. The success is attributed to the relationships developed between the manufacturing firms and their suppliers. Benefits can be generated for both supplier and manufacturer. Firms can work together to improve product design and product efficiency, which can lead to improved overall waste reduction.

The manufacturing system is where the greatest amount of pollution may be generated by firms, and where the highest volume of resources is consumed [Simpson and Power, p.61]. This means that the supply-manufacture relationship has the ability to make significant strides towards a greener, leaner supply chain.

2.4 Significance of Going Green

In conclusion, many large U.S. companies have realized the significance of green supply chain management to long-term success, and are positioning themselves to develop green methods in their technologies and products. A company can employ environmentally beneficial strategies selectively to

become more competitive over the long run. Putting these strategies into practice will require fundamental changes in core business processes, including product development, manufacturing, and supply chain management.

3. PROPOSED PLAN OF ACTION

3.1 Social and Environmental Responsibility (SER) Program

Supply Chain Social and Environmental Responsibility (SER) program started in 2000 with a long-term vision of cooperation throughout the supply chain to improve standards of labor management, human rights and environmental performance. This strategy includes:

Proactive Engagement - through collaborative assessments, improvement plans and capabilitybuilding initiatives, HP helps suppliers achieve their own independent, robust internal governance to ensure continued improvements. The internal collaboration process is important to ensure SER is understood throughout the HP sourcing community.

Transparency - work openly with non-governmental organizations (NGOs) and other interested parties to communicate challenges and progress, and ensure HP target the right issues. Publicize the results of auditor and a list of suppliers.

Meaningful Results - audit program reveals issues that required attention and monitoring suppliers performance. This will ensure HP achieves long-term results.

Higher labor and environmental standards will lead to a higher-quality product. This will also protect HP reputation and assure the continuity lines of supply by ensuring SER issues that will not adversely affect a suppliers production capability. The program creates efficiencies that can decrease cost and strengthens partnerships for HP.

As a supplier, they must not only build their management capability but also often challenge a prevailing culture in order to comply with HP code. Suppliers are also required to promote efficient use of energy

and other resources and minimize the use of hazardous materials. In 2009, HP revised their Supply Chain SER Policy to highlight the important of supplementing regulatory compliance with continual improvement in environmental performance. In addition, below policies are drafts to influence their future strategy:

Introduction of the Global Social Compliance Program base code. Increased focus on SER by retailers. Incorporation of SER standards in bilateral and multilateral trade agreements Increased focus on traceability through many levels of the supply chain. Increased focus by HP on more difficult issues as SER program begins to expose deeper underlying problems Increased attention on the role of business in respecting and promoting human rights

3.2 Internal Collaboration and Governance

All HP businesses support supply chain SER program through the Supply Chain Board, which meets monthly and reports directly to the HP Executive Council. It also defines the responsibility and reporting across relevant HP businesses and functions. |[pic] |

Figure 2: HPs Supply Chain Governance Structure

Procurement Organization - Engaging SER issues and consider them in day-to-day sourcing and supplier management decisions. Receive regular training in how to assess the SER risk associated with a potential supplier. Supply chain SER is included in the Supplier Evaluation, Contract Development and Execution Management phases of HPs Procurement Management Process. It defines how procurement organizations worldwide manage production suppliers. Compliance with the Procurement Management Process is audited internally and by external organizations that certify HPs quality system (ISO 9000).

Strategic Audit Program - Audits verify conformance with HPs EICC and establish whether the supplier has systems to promote continued conformance. Audit results will enable HP to identify on the most pertinent issues for specific types of suppliers, sites, countries and regions. Auditors are most strategic when they are collaborative and constructive. Experience shows that achieving cooperation from suppliers is essential because it creates for lasting improvement and usually allows a good relationship.

Third-Party Monitoring - Provides independent oversight of HP supplier auditing efforts. HP engages third-party audit firms, including Environmental Resources Management (ERM) and Verit, to conduct verification audits of HP suppliers. By validating the findings with the results of third-party audits, suppliers usually correspond to the findings of HPs internal audits.

Capability Building - Encouraging lasting improvement in suppliers SER performance by building their capability to understand and manage the issues they encounter. HP collaborates with local NGOs and training groups to deliver programs that address concerns raised by audit results and stakeholders. Engaging locally ensures programs address key local challenges, while improving relationships.

3.3 Supplier Management System

HPs SER program is based on a Four-Phase Supplier Management System that aims to build suppliers capabilities. All key production suppliers should undergo the introduction and assessment stages (see figure 3 below). These first two stages mainly comprise new suppliers. Suppliers move to the validation phase based on risk assessments before entering the capability-building phase, where HP develop programs to address key training needs, ensuring lasting performance improvement. Currently, concentration is on validation and continual improvement. It shows that the suppliers performance improves most in these two stages.

[pic] Figure 3: Four-Phase Supplier Management System

The gap between introduction and assessment represents sites that are low risk based on the company or country they are in. The gap between assessment and validation represents sites whose selfassessments indicate they are low risk. The increases in introduction and assessment in 2009 are largely due to the expansion of the program to nonproduction suppliers.

Phase 1 Introduction: HP assesses potential suppliers according to their risk-based approach outlined below. This helps HP establish the appropriate level of participation in their program for a supplier. Once the assessment is complete, HP confirms the SER requirements in their contract.

Phase 2 - Assessment: HP requests that high-risk suppliers complete a self-assessment questionnaire to identify potential SER performance risks. Self-assessments help suppliers understand the expectations for conformance to HPs EICC. HP reviews and provides feedback on the self-assessment, and suppliers create and implement an improvement plan, if required.

Phase 3 - Validation and Improvement:

HP developed local internal auditing teams and backed by independent verification. There do not rely on supplier certification to external standards, because standards can vary among certified companies and suppliers without certification can have equally rigorous SER management systems. Instead, they have to use three types of audits as below:

Audits conducted by HP employees Audits conducted by an external organization to verify the results of HP audits or to investigate allegations Joint audits by an external organization on behalf of HP and other Electronic Industry Citizenship member companies

Based on the audit result, suppliers are deductively ranked to any nonconformance according to HPs Electronic Industry Code of Conduct (EICC) using standard ISO guidelines:

Major Nonconformance - A significant failure in the management system that affects its ability to ensure that conditions conform to HPs EICC.

Zero-Tolerance Major Nonconformance - The most serious type of major nonconformance are zerotolerance items, which include underage workers, forced labor, health and safety issues posing immediate danger to life or serious injury, and violation of environmental laws posing serious and immediate harm to the community. If such an item is uncovered, HPs zero-tolerance policy requires auditors to escalate it immediately. The issue must then be rectified within 30 days of the original audit. HP returns between 30 days and 90 days after the audit days to confirm resolution of the issue.

Minor nonconformance - Not a systemic problem and typically an isolated finding, such as an overdue corrective action from an internal audit or a procedure that has not been revised to reflect a change in regulations. Suppliers have between 180 and 360 days to address minor nonconformance.

Observation - Not considered a nonconformance to HPs EICC. It recognizes there could be better monitoring or documentation processes.

HP requires suppliers to provide a detailed corrective action plan addressing all identified nonconformances within 30 days of receipt of the site audit report. Suppliers need to demonstrate to HP that they have addressed major nonconformance within 180 days. They can do this by delivering to HP appropriate documentation or other evidence of resolution. For major nonconformance that requires physical checks, HP returns to all audited sites within two years.

Phase 4 - Capability Building: Remain engaged with suppliers and provide support is the best way to help the supplier improve their long-term performance. If a supplier rejects the continual improvement approach, HP has to emphasize and not to tolerate with serious or repeated violations of HPs EICC and terminate the relationship. Terminating a contract means loss of jobs, so in this case HP should prefer to collaborate with suppliers to improve factory conditions. HP conduct risk assessments to prioritize implementation of their supply chain SER. Their first-tier suppliers (see figure 4 below) select and manage their own second-tier suppliers. The risks factors use to prioritize suppliers are:

Location - risk is higher in some locations than others.

Procurement Category - risk is higher in some procurement categories, such as manufactured parts, components and real estate construction services, and lowers in others, such as software licensing, marketing services or telecom services. Company information - information from previous audits, press articles, incidents or accidents may impact assessment of supplier risk. [pic] Figure 4: Risk-Based Approach to SER 3.4 Reverse Logistics

Reverse logistics stands for all operations related to the reuse of products and materials. It is the process of planning, implementing, and controlling the efficient, cost effective flow of raw materials, in-process inventory, finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal (see figure 5 below). [pic] Figure 5: Forward and Reverse Logistics Supply Chain Model

For instance in 1997, HP initiated a campaign to collect printer cartridges by offering a postage-paid, return-for-recycling envelope in products sold in the US and parts of EU. The response from ecosensitive customers were very supportive as of 2005, over 92 million LaserJet cartridges and 20 million HP Inkjet cartridges were returned and recycled. The challenge for retailers and vendors is to process returns at a proficiency level that allows quick, efficient and cost-effective collection and return of merchandise. Customer requirements facilitate demand for a high standard of service that includes accuracy and timeliness. Its the logistic company's responsibility to shorten the link from return origination to the time of resell. In fact, HP invested huge chunk of money to strengthen its reverse logistics arms and emphasize more on the product design recyclability for ease of returned goods management.

[pic] Figure 6: Reverse Logistics Management System

This model comprises of three main processes including; i) customer interaction where information of goods to be returned is channeled back to retailer, DC or manufacturer, ii) transportation and

positioning collection center and mode of transportation is predefined to receive, inspect and sort those returned goods, and iii) value redemption to evaluate the recyclability, reusability, and resellability of goods returned. 4. DISCUSSION/CONCLUSION

4.1 Recommendations for Suppliers and Customers

Implement SER practices that are simply good for business - Many EICC rules, while important to follow, are strictly conformance efforts that reduce risk. Example, acquiring the necessary environmental permits, ensuring child labor avoidance, providing equal human treatment are all examples of important conformance requirements but, they do not have great potential to yield cost saving. They do, of course in some cases, prevent penalties from being assessed by authorities. Following certain EICC rules generate more tangible financial benefits. Suppliers should seek out and prioritize projects with return-on-investment (ROI) potential.

Strengthen conformance by focusing on continuous improvement and better auditing - Continuous improvement involves supplier and sub-tier supplier education, assessment, and commitment to remediation. To improve sub-tier supplier education, HP is working to train first-tier suppliers to audit second-tier suppliers. HP has also begun working with first-tier suppliers to train second-tier suppliers to manage their own suppliers. HP emphasized that capability-building efforts must include involvement by customers to ensure that suppliers participate wholeheartedly. Customer purchasing staff should also continually emphasize SER amidst their regular communications to serve as a constant reinforcement of standards and continuous improvement.

4.2 Collaborate and Cooperate

Collaboration with suppliers is the better way to meet standards of Electronic Industry Code of Conduct (EICC). Although EICC is to occasionally inspect suppliers and then terminate those who are badly out of compliance, but collaboration can take place to reduce the number of supplier terminations, except for those are not in the system or they clearly did not care the policy. Collaboration also means that all companies in the supply chain are actively working together towards common objectives, and is characterized by sharing information, knowledge, risk and profits.

Sharing entails understanding how other companies operate and make decisions, and goes much deeper than cooperation. By developing and maintaining supply chain relationship will enable collaboration to facilitate the task on common interest, openness, mutual help, clear expectation, leadership, cooperation not punishment, trust, benefit sharing and advance technology. Below are the benefits from effective collaborations: Allow a company to communicate with its suppliers at all levels. Can help break down barriers between companies. Speed up information flows. Can turn data into useful collaborative information.

Nowadays, Green Supply Chain Management and Reverse Logistics are unavoidable arising issues that have significant impacts on organizations that should be tackled efficiently and effectively. HP has successfully adapted to these changes in supply chains climate and its model can be used as an explicit blueprint for others to replicate. REFERENCES

1. Kevin OMarah & Eric Karofsky (2006). The Value of Green A Case Study of Hewlett-Packards Social and Environmental Responsibility Strategies in the Supply Chain.

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12. http://en.wikipedia.org/wiki/Supply_chain_managementContents Introduction 2 2

Aims and Objectives of the research Literature Review 3

Company and market overview 3 Lessons from American Distribution strategy Distribution strategy in Europe 5 Additional Theory The Company today 6 7 3

Strategic Framework Conclusion 8

Current Status 9 Future Direction References 11 10

Introduction Logistics is one of the key issues for any business enterprise; even for service and software enterprises whose output is not physical in nature. It is however, the main consideration for retail businesses. The growth of enterprises in the retail industry has depended on their ability to manage inventory which is a part of the larger process of logistics management. The competitive advantage possessed by a company is also determined by similar factors. Efficient management of logistics allows a company to focus on other activities such as adding value to existing products, etc which indirectly increase the productivity of the organization. However, in todays business scenario, the retail market has evolved and efficient logistics management is no longer just an advantage, it is the norm. Companies have found several different ways in which to achieve this, usually in alignment with their business models. The use of IT technologies has been one of the main factors that have hastened this process since companies are now able to communicate between offices regardless of the distance that separates them (CILTUK, 2007: 1011). In order to understand the practical issues concerning inventory management, we examine the case of Amazon in the below report. Aims and Objectives of the research The following case study which examines the case of Amazon reflects on the growth of the company with respect to various theories associated with logistics management, in particular with the subject of inventory management. It attempts to relate the issues faced by the company and its subsequent successes to the research available in the field. It also explores the alternatives available for the company that might help it grow further. With the above information, the study also attempts to predict the future direction of the company based on the current status of the company and available business scenarios. Literature Review Company and market overview Amazon was setup in 1994 by Jeff Bezos as an online book store. Similarly, it was established in Europe as a book store in 1998. As a result of its successes, it was launched in other countries as well. Amazon

International consists of a number of subsidiaries such as Amazon Japan and its operations in Europe. Its Europe operations have needed an improvement to match its expected growth rate. In particular, its distribution strategy has been looked at more closely and an attempt has been made to emulate the American structure. Due to advancements in technology, Amazon has been able to enter a number of markets. However, technology, coupled with the opening up of new markets across the world has also led to an increase in the number of competitors in the field. Lessons from American Distribution strategy Reducing the costs incurred due to the purchase and holding of inventory or stocks is one of the main challenges for a retail store. However, the challenges faced by an online store are unique. Amazon was setup at a time when most of its competitors, other book stores, were brick and mortar stores or mail order catalog businesses. The challenge of maintaining a low cost for stocks, at the same time satisfying customer demands is magnified for an online store. Amazon initially tackled this problem by holding minimum stocks while relying of wholesalers to satisfy most of its demand. This helped reduce the holding cost of stocks. At the same time, Amazon also tied up with publishers so that the unit cost of stocks would also decrease (Waters, 2003: 52). A combination of the two helped the company's capacity grow from 1 million book titles to 2.5 million book titles in the early years. This also helped ensure that orders were completed within 4 to 7 days of being placed whereas the inventory turns were as high as 70 in 1990 (Simchi-Levi, 2008: 210). Amazon grew rapidly in the years following its establishment. Apart from increasing its existing business in new regions of the country, the company also decided to expand its market through the sale of music products. However, the rate of growth of the company was so rapid that existing infrastructure systems were not able to handle the new demands and therefore new processes or systems became necessary. The company realized the problem early on and dedicated a huge portion of its software spending into developing more stable back office systems that could cater to the huge volumes of information. Thus the company was able to avert a disaster even before it took shape (Simchi-Levi, 2008: 419-420; Waters, 2003: 42). Although the entry into the music industry gave Amazon an opportunity to increase its customer base and productivity of existing distribution centers, it faced new and pressing challenges. A number of companies had entered the online market and began operations in all of the markets that Amazon had penetrated. Therefore, Amazon had to develop a new competitive advantage to sustain its growth. It had to rework its sales strategy. The company decided to reorganize its distribution strategy and took a number of steps in this direction. Firstly, the company decided to increase the number and size of its distribution centers. This was done very methodically, so much so that specialized software was used for the purpose. A number of factors had been built into the software so that the location and product portfolio of each centre was optimal. This helped decrease lead times and increase the capacity of stock held by the company. Due to the above steps, Amazon was able to package nearly 1 million boxes a day by 2001 (Simchi-Levi, 2008: 211-214). The management of product portfolio of each distribution centre was given special attention and this process was continually improved as new distribution centers were established and new products added.

Apart from specific actions aimed at correcting and improving certain functions of the company, Amazon initiated a number of processes that were aimed at increasing efficiencies overall. This included looking into the processes of the distribution centers, inventory costs and delivery processes more closely. However, it was determined that customer satisfaction must be maintained during the processes of reducing costs. Initiatives such as the application of Six Sigma to the processes of the distribution centers, simulating peak season demands, further optimization of product portfolio in distribution centers, streamlining purchase processes, increasing the efficiency of temporary staff, etc were undertaken. As a result, the revenues of the company increased 26% in 2002 compared to its revenues the year before. Arnold (2009: 411) explains that continuous process improvement involves using existing systems more efficiently than purchasing the most advanced ones. Distribution strategy in Europe Amazon was founded in Europe in 1998 by which time the company was comfortably setup in the US. It thus had an advantage in terms of the knowledge of expectations of customers and challenges in the field. It initially followed a strategy similar to that in the US by entering the online market as a book retailer, of which the UK and Germany were the biggest. It then diversified into other markets. However, Amazon did not have a smooth journey to the top as in the US since there were a number of established competitors already present, albeit not through the online channel. In Germany and the UK, Amazon acquired companies that were successful so that it could enter the market whereas in France it setup its own enterprise from scratch. In addition, a number of customizations had to be made to each of the strategies employed in the countries. Apart from setting up different interfaces for its different customers, Amazon had to rework its entire sales and distribution strategy even to the point of allowing different payment options based on local preferences. Procurement strategies from publishers and wholesalers also had to be different so that the method adopted would be the most optimal. While most of the methods employed in the US market had to be altered for Europe, there were a few inherent advantages to this change as well such as the efficiency of the local postal service which saved on shipping orders on purchases within the country. With such a wide number of country specific factors, it was decided to decentralize operations and allow a country manager to manage the various functions of each subsidiary. Additional Theory Given the various benefits enjoyed by the company on account of its actions, let us have a look at the theoretical basis that supports them. This will help the company further improve their processes and activities. According to Christopher (1998: 15), competitive advantage can be gained either through a cost advantage or a value advantage compared to other operators in the market. This is evident in the case of Amazon, since it initially gained successes in the US by possessing a cost advantage through tie ups with wholesalers and publishers whereas its later strategy depended on creating a value advantage since a number of competitors had entered its market and had the capacity to sell products at the same price as Amazon. Creating a value advantage was more challenging and involved a number of strategies

itself. In the US, reducing lead times was a major step in this direction which required efficient management of distribution centers in terms of product portfolio and the location of the distribution centers. In addition, order of multiple products also provided opportunities to attract customers and maintain their loyalty. In fact, most of the activities of Amazon have been centered on trying to add value to its existing product portfolio. The Company today Soon after its successes in Europe in 2001 and 2002, Amazon launched a web services platform which it developed into one of the largest in the world. However, a more significant change took place in 2007 when Amazon launched the Kindle, thus becoming an OEM (original equipment manufacturer). An interesting factor is that with the launch of the product, there were initial fears that one of its main markets, the books industry, would be significantly disturbed. However, Amazon has always innovated and transformed traditional methods of business. Books continue to contribute to a significant sum of the sales and e-books are sold three times more compared to hard covers as of 2010 (Cendrowski, 2011). Amazon has always leaned towards adopting a customer centric approach to doing business, whatever the market, method of sales, products sold, etc. This has helped sustain its competitive advantage and grow from an online book seller to the largest internet retailer in the world. Strategic Framework The issue of EDN relates to the wider issue of centralized versus decentralized operations. It has implications not only in Europe but is much more important for the company as it expands to other markets in Asia and the Middle-East. While local distribution centers, shipping procedures, etc have proved significantly advantageous compared to central facilities, the decision between centralized and decentralized management is much less obvious. While centralized management leads to global optimization and thus help realize the goals of the company in all its locations, decentralized management will result in local optimization and the quick and effective implementation of strategies unique to the location of operation. Another obvious advantage of centralized management is that in addition to the development of local strategies, it is possible to interconnect all of the local strategies or implement lessons from each of the local strategies which cannot be the case with decentralized management. A major factor required for the implementation of such a system would be the quick access to information from each of its centers around the world which can be achieved by modern IT systems. However, one of more recent phenomena when compared to others is that of outsourcing in which each of the stakeholders have different methods of operation and objectives. The centralized approach might not be the most effective in this case (Simchi-Levi, 2008: 240-41). Conclusion It is clear from the above case that logistics management involves a number of issues and not is just a certain set of procedures. It has now evolved from a mere cost saving process into a strategic advantage for a company. However, the process of transformation is still in motion since many companies still view

it only with respect to the activities of transportation, handling and storage, especially in industries other than the retail sector. In future, it will encompass all of the process associated with the flow of goods and information. The management of information within a company is still largely the duty of the IT function today. However, there is an advantage in applying the lessons learnt in the flow of goods to that of information as well. Such a trend is bound to have an impact on the factor of innovation in a company since easy availability of information is known to enhance it. Apart from innovation, more efficient goods and information logistics management will also have a positive effect on the team structure and motivation. However, one of the major challenges that will be faced is complexity. With an increase in the number of processes involved, factors affecting and dependant areas of logistics management, it is important to keep the entire process as simple as possible. This is because of the fact that an increase in complexity invariably causes the entire supply chain to become unstable. However, ICT technologies can be employed in a number of ways not only to reduce the complexity, but also as a feedback mechanism in the entire process. Hence, as much attention and resources, need to be devoted to the IT structure of the company as to the development of its logistics strategy (Gracht, 2008: 87-90). Current Status The case for an EDN (European Distribution Network) had been made as early as 2002; however, Amazon continues to have distribution centers in each of the countries it operates in, mainly due to issues in transportation of stocks between countries. However, in addition to logistics issues in existing markets and new markets where Amazon plans to enter, the company faces the challenges associated with maintaining and expanding the market created by Kindle due to which 7 million of them were sold in the year 2010 (Cendrowski, 2011). Maintaining its place in the market in the face of competition from companies such as Apple, etc is a big challenge. Future Direction There is little doubt that Amazon will continue to expand both its products, services and markets. While this will demand innovation, Amazon has time and again demonstrated that it is willing to modify its business model to accommodate its objectives. Global sourcing and supply issues will test the company in new markets that might not have the same predictability and stability as their counterparts in the US and Europe. With outsourcing having matured in the last few decades, the company will need to interact more closely with third parties who will manage a considerable number of functions of the company in future. background

As an individual assignment, we have been given the topic: Operation Management is the heart of any business and we are all operations manager. How can managers actually understand how logistics network design and operations influence customer satisfaction?This assignments rationale has been towards aiming a dialectical approach to the understanding of operations and logistics management in todays business settings.

Thus, I have tried to extensively cover in my report all the relevant aspects of Operations and Logistics management. I have also explained as to what is the role of a manager in todays competitive Operations and logistics areas and as to how he can understand his responsibilities and implement the same for the benefit of the organisation.

I have done this by starting my report by a suitable Introduction. Thereafter, I explained about Operations management and its various facets like concept of production, production system, production management, operations concept, framework of managing operations and the scope of operations management.

Then I explained Logistics Management encompassing its meaning, its impacts and its scope Thereafter, I proceeded towards the relationship of operations and logistics management with customer service and customer satisfaction. In this respect, I explained the meaning of customer service and customer satisfaction in todays point of view. After this, I explained the importance of customer satisfaction in Operational and Logistical activities. Consequently, after providing a framework of the relevant topics, I finally proceeded towards the assignment topic by discussing the role of operation and logistics managers in various elements of customer service and the steps taken by them to ensure efficient customer service. In order to justify my point of view, I also gave suitable case studies of two diverse organizations i.e., DSC Logistics and York Group, to comprehend the gaining importance of customer service and satisfaction in the Operation and logistic network. Finally, I concluded by summarising the whole report and its analysis from my point of view.

introduction

In todays customer driven market, it is not only the product/service itself that matters the most, but also the perceived value to the customer of the entire relationship with a company. The way companies measure the quality of their products/services has evolved from Internal quality assurance to External customer satisfaction and from there to Customer Value. Internal quality measures, such as providing the customer with quality product without any defects, dominated the goals of companies in era of supply driven manufacturing. Thereafter, it moved towards External customer satisfaction measures which focussed on getting valuable information about the existing customers and generating the ideas for further improvement. However, the current emphasis on Customer Value goes a step further by

establishing the reasons a customer chooses one companys product over anothers and looking at the entire range of product, services, and intangibles that constitute the companys image and brand.

Indeed, Operations activities have been always considered as the heart of all business organisations regardless of what business it is. Firstly, because 50 percent or more of all jobs are in the operation management-related areas such as customer service, product design, production planning and control, quality assurance, scheduling, job design, inventory management and so on. Secondly, because activities in all the other areas of business organisations such as Finance, accounting, human resources, logistics, management information system(MIS), marketing, purchasing , as well as others are all interrelated with operations management activities, hence, requiring people in all these areas to have certain basic understanding about operations management. Logistic activities, on the other hand, were previously considered a back office function, but have now evolved into the highly visible discipline of supply chain management. This is because Logistics management is an important component in fulfilling customers needs and providing value as it determines the availability of the product, i.e. how fast they arrive in the market, and at what cost.

Both, Operational and Logistical Managers, play a vital role in achieving organisations desired goals of Customer service and satisfaction. Operations personnel do this by designing and producing the right product/service, at the right time, at right quality, at right cost for the rightly desired customer. Logistics personnel, on the other hand, facilitate the production efforts by delivering the product/service at the right time, in right quality, at right cost and to the right customer. They go even a step further to provide valuable customer service by giving important Reverse logistics comprising warranty management, recycling, repairs, etc. This fact can be validated by studying various real industries cases who with the help of efficient and updated operational and logistics process, were able to achieve milestones in attaining high levels of customer service and satisfaction. Two of the examples stayed in the report, out of numerous such organisations, have been of DSC Logistics and York Group.

This report focuses on the same issue in two different ways. Firstly, by viewing a logistics provider itself (DSC Logistics), and observing as to how it streamlined its logistical process to achieve higher customer satisfaction levels. Secondly, by observing how a manufacturer (York Group) updates and restructures its operations to achieve higher efficiency and customer service levels.

DSC Logistics is one of the largest privately owned, third-party logistics organizations in the United States, and it provides services including transportation, warehousing, packaging, e-fulfillment, operations-based consulting, and other knowledge-based services. Some of the main challenges faced by them were of improper speed and inefficiency to order-fulfillment system, inability to keep pace with

customers technology requirements and difficulties to integrate regional-based load planning and logistics. York Group, on the other hand, is the second largest manufacturer of caskets in America, and is a leading manufacturer of all-wood caskets. Like many manufacturers, York faced an increasingly competitive marketplace. Hence, York managers laid down that the ultimate goal of their company was to increase profitability while improving quality which required new methods of measuring and determining standard times and an improved work flow design.

Quality and customer satisfaction have long been recognized as playing a crucial role for success and survival in todays competitive market. Both these companies were driven to update and change their operational and logistical systems due the increased competitive era and highly demanding consumers. Customer satisfaction, quality and retention are global issues that affect all organizations, be it large or small, profit or non-profit, global or local. Many companies are interested in studying, evaluating and implementing marketing strategies that aim at improving customer retention and maximizing share of customers in view of the beneficial effects on the financial performance for the firm.

Hence, the managers at all levels make sure that they align their organisational goals with its processes which lead to maximum customer satisfaction, ultimately leading to high customer retention and high profitability.

OPERATIONS MANAGEMENT

Production/operations management is the process, which combines and transforms various resources used in the production/operations subsystem of the organization into value added product/services in a controlled manner as per the policies of the organization. Therefore, it is that part of an organization, which is concerned with the transformation of a range of inputs into the required (products/services) having the requisite quality level. The set of interrelated management activities, which are involved in manufacturing certain products, is called as production management. If the same concept is extended to services management, then the corresponding set of management activities is called as operations management.

1 CONCEPT OF PRODUCTION

Production function is that part of an organization, which is concerned with the transformation of a range of inputs into the required outputs (products) having the requisite quality level. Production is defined as the step-by-step conversion of one form of material into another form through chemical or mechanical process to create or enhance the utility of the product to the user. (Figure 1) Thus production is a value addition process. At each stage of processing, there will be value addition. Edwood Buffa defines production as a process by which goods and services are created. Some examples of production are: manufacturing custom-made products like, boilers with a specific capacity, constructing flats, some structural fabrication works for selected customers, etc., and manufacturing standardized products like, car, bus, motor cycle, radio, television, etc. Figure 1: Schematic production system.

2 PRODUCTION SYSTEM

The production system of an organization is that part, which produces products of an organization. The production system has the following characteristics: 1. Production is an organized activity, so every production system has an objective. 2. The system transforms the various inputs to useful outputs. 3. It does not operate in isolation from the other organization system. 4. There exists a feedback about the activities, which is essential to control and improve system performance. Production systems can be classified as Job Shop, Batch, Mass and Continuous Production Systems as shown in figure 2 below: [pic] Figure 2 : classification of production system

3 PRODUCTION MANAGEMENT

Production management is a process of planning, organizing, directing and controlling the activities of the production function. It combines and transforms various resources used in the production subsystem of the organization into value added product in a controlled manner as per the policies of the

organization. The objective of the production management is to produce goods services of right quality and quantity at the right time and right manufacturing cost. i.e.: 1. RIGHT QUALITY The quality of product is established based upon the customers needs. The right quality is not necessarily best quality. It is determined by the cost of the product and the technical characteristics as suited to the specific requirements. 2. RIGHT QUANTITY The manufacturing organization should produce the products in right number. If they are produced in excess of demand the capital will block up in the form of inventory and if the quantity is produced in short of demand, leads to shortage of products. 3. RIGHT TIME Timeliness of delivery is one of the important parameter to judge the effectiveness of production department. So, the production department has to make the optimal utilization of input resources to achieve its objective. 4. RIGHT MANUFACTURING COST Manufacturing costs are established before the product is actually manufactured. Hence, all attempts should be made to produce the products at pre-established cost, so as to reduce the variation between actual and the standard (pre-established) cost. The objective of the production management is to produce goods services of right quality and quantity at the right time and right manufacturing cost.

4 CONCEPT OF OPERATIONS

An operation is defined in terms of the mission it serves for the organization, technology it employs and the human and managerial processes it involves. Operations in an organization can be categorised into manufacturing operations and service operations. Manufacturing operations is a conversion process that includes manufacturing yields a tangible output: a product, whereas, a conversion process that includes service yields an intangible output: a deed, a performance, an effort.

5 Framework for managing operations

Operation managers are concerned with planning, organizing, and controlling the activities which affect human behaviour through models. (Figure 3 )

Figure 3 : General model for managing operations

PLANNING: Activities that establishes a course of action and guide future decision-making is planning. The operations manager defines the objectives for the operations subsystem of the organization, and the policies, and procedures for achieving the objectives. This stage includes clarifying the role and focus of operations in the organizations overall strategy. It also involves product planning, facility designing and using the conversion process. ORGANIZING: Activities that establishes a structure of tasks and authority. Operation managers establish a structure of roles and the flow of information within the operations subsystem. They determine the activities required to achieve the goals and assign authority and responsibility for carrying them out. CONTROLLING: Activities that assure the actual performance in accordance with planned performance. To ensure that the plans for the operations subsystems are accomplished, the operations manager must exercise control by measuring actual outputs and comparing them to planned operations management. Controlling costs, quality, and schedules are the important functions here. BEHAVIOUR: Operation managers are concerned with how their efforts to plan, organize, and control affect human behaviour. They also want to know how the behaviour of subordinates can affect managements planning, organizing, and controlling actions. Their interest lies in decision-making behaviour. MODELS: As operation managers plan, organise, and control the conversion process, they encounter many problems and must make many decisions. They can simplify their difficulties using models like aggregate planning models for examining how best to use existing capacity in short-term, break even analysis to identify break even volumes, linear programming and computer simulation for capacity utilisation, decision tree analysis for long-term capacity problem of facility expansion, simple median model for determining best locations of facilities etc.

6 Scope of operations management

As discussed earlier, Production and operations management concern with the conversion of inputs into outputs, using physical resources, so as to provide the desired utilities to the customer while meeting the other organizational objectives of effectiveness, efficiency and adoptability. It distinguishes

itself from other functions such as personnel, marketing, finance, etc., by its primary concern for conversion by using physical resources. Following are the activities which are listed under production and operations management functions:

1) LOCATION OF FACILITIES: Location of facilities for operations is a long-term capacity decision which involves a long term commitment about the geographically static factors that affect a business organization. It is an important strategic level decision-making for an organization. It deals with the questions such as where our main operations should be based? The selection of location is a keydecision as large investment is made in building plant and machinery. An improper location of plant may lead to waste of all the investments made in plant and machinery equipments. Hence, location of plant should be based on the companys expansion plan and policy, diversification plan for the products, changing sources of raw materials and many other factors. The purpose of the location study is to find the optimal location that will results in the greatest advantage to the organization.

2) PLANT LAYOUT AND MATERIAL HANDLING: Plant layout refers to the physical arrangement of facilities. It is the configuration of departments, work centres and equipment in the conversion process. The overall objective of the plant layout is to design a physical arrangement that meets the required output quality and quantity most economically. According to James Moore, Plant layout is a plan of an optimum arrangement of facilities including personnel, operating equipment, storage space, material handling equipments and all other supporting services along with the design of best structure to contain all these facilities. Material Handling refers to the moving of materials from the store room to the machine and from one machine to the next during the process of manufacture. It is also defined as the art and science of moving, packing and storing of products in any form. It is a specialised activity for a modern manufacturing concern, with 50 to 75% of the cost of production. This cost can be reduced by proper section, operation and maintenance of material handling devices. Material handling devices increases the output, improves quality, speeds up the deliveries and decreases the cost of production. Hence, material handling is a prime consideration in the designing new plant and several existing plants.

3) PRODUCT DESIGN: Product design deals with conversion of ideas into reality. Every business organization has to design, develop and introduce new products as a survival and growth strategy. Developing the new products and launching them in the market is the biggest challenge faced by the organizations. The entire process of need identification to physical manufactures of product involves three functions: marketing, product development, and manufacturing. Product development translates the needs of customers given by marketing into technical specifications and designing the various features into the product to these specifications. Manufacturing has the responsibility of selecting the processes by which the product can be manufactured. Product design and development provides link between marketing, customer needs and expectations and the activities required to manufacture the product.

4) PROCESS DESIGN: Process design is a macroscopic decision-making of an overall process route for converting the raw material into finished goods. These decisions encompass the selection of a process, choice of technology, process flow analysis and layout of the facilities. Hence, the important decisions in process design are to analyse the workflow for converting raw material into finished product and to select the workstation for each included in the workflow.

5) PRODUCTION PLANNING AND CONTROL : Production planning and control can be defined as the process of planning the production in advance, setting the exact route of each item, fixing the starting and finishing dates for each item, to give production orders to shops and to follow up the progress of products according to orders. The principle of production planning and control lies in the statement First Plan Your Work and then Work on Your Plan. Main functions of production planning and control includes planning, routing, scheduling, dispatching and follow-up. a) Planning: is deciding in advance what to do, how to do it, when to do it and who is to do it. Planning bridges the gap from where we are, to where we want to go. It makes it possible for things to occur which would not otherwise happen. b) Routing may be defined as the selection of path which each part of the product will follow, which being transformed from raw material to finished products. Routing determines the most advantageous path to be followed from department to department and machine to machine till raw material gets its final shape. c) Scheduling determines the programme for the operations. Scheduling may be defined as the fixation of time and date for each operation as well as it determines the sequence of operations to be followed. d) Dispatching is concerned with the starting the processes. It gives necessary authority so as to start a particular work, which has already been planned under Routing and Scheduling. Therefore, dispatching is release of orders and instruction for the starting of production for any item in acceptance with the route sheet and schedule charts. The function of follow-up is to report daily the progress of work in each shop in a prescribe Performa and to investigate the causes of deviations from the planned performance.

6) QUALITY CONTROL: Quality Control (QC) may be defined as a system that is used to maintain a desired level of quality in a product or service. It is a systematic control of various factors that affect the quality of the product. Quality control aims at prevention of defects at the source, relies on effective feedback system and corrective action procedure.

Quality control can also be defined as that industrial management technique by means which product of uniform acceptable quality is manufactured. It is the entire collection of activities which ensures that the operation will produce the optimum quality products at minimum cost. The main objectives of quality control are: a) To improve the companies income by making the production more acceptable to the customers i.e., by providing long life, greater usefulness, maintainability, etc. b) To reduce companies cost through reduction of losses due to defects. c) To achieve interchange ability of manufacture in large scale production. d) To produce optimal quality at reduced price. e) To ensure satisfaction of customers with productions or services or high quality level, to build customer goodwill, confidence and reputation of manufacturer. f) To make inspection prompt to ensure quality control. g) To check the variation during manufacturing.

7) MATERIALS MANAGEMENT: Materials management is that aspect of management function which is primarily concerned with the acquisition, control and use of materials needed and flow of goods and services connected with the production process having some predetermined objectives in view. The main objectives of materials management are: a) To minimise material cost. b) To purchase, receive, transport and store materials efficiently and to reduce the related cost. c) To cut down costs through simplification, standardisation, value analysis, import substitution, etc. d) To trace new sources of supply and to develop cordial relations with them in order to ensure continuous supply at reasonable rates. e) To reduce investment tied in the inventories for use in other productive purposes and to develop high inventory turnover ratios.

8) MAINTENANCE MANAGEMENT: In modern industry, equipment and machinery are a very important part of the total productive effort. Therefore, their idleness or downtime becomes are very expensive. Hence, it is very important that the plant machinery should be properly maintained. The main objectives of maintenance management are:

a) To achieve minimum breakdown and to keep the plant in good working condition at the lowest possible cost. b) To keep the machines and other facilities in such a condition that permits them to be used at their optimal capacity without interruption. c) To ensure the availability of the machines, buildings and services required by other sections of the factory for the performance of their functions at optimal return on investment.

Figure 4: Scope of production and operations management

LOGISTICS MANAGEMENT

Since approximately 1980s, the term logistics has become much more widely recognised by the general public and the Businesses. One of the factors contributing to the recognition of logistics has been increased customer sensitivity to not only product quality but also the associated service quality.

Transportation, logistics, supply chain management, materials handling, and inventory control continue to evolve. However, this evolution has created cross-fertilization among these functions, driven by factors both conceptual -- matching demand to supply -- and technological -- an enhanced ability to communicate and collaborate. This cross-fertilization has also blurred the definition of some terms. For example, is logistics the same thing as supply chain management (SCM)?

Some respondents of a recent survey of Inbound Logistics say SCM is the same old thing with a new handle, while others note it is more encompassing than logistics. Heres what some Inbound Logistics readers had to say: "There isn't a difference today."-- Wayne Johnson, American Gypsum

"In my opinion, there is very little difference between the two. Logistics was always a military term."-Steve Parks, Norwood

"Supply chain management incorporates the field of logistics. Logistics is a number of sub-processes within SCM.--Michael Kirby, National Distribution Centers

Hence, in order to avoid potential misunderstanding about the meaning of logistics, this report adopts the definition offered by the Council of Supply Chain Management Professionals earlier known as Council of Logistics Management (CLM).

1 MEANING

Logistics Management is the most widely accepted term and encompasses logistics not only in the private business sector but also in the public/government, non-profit sectors and service organizations like Banks, hospitals etc. It owes its origins to the military which has long recognized the importance of logistics activities like personnel and supplies such as fuel, spare parts etc. According to Council of Supply Chain Management Professionals, Logistics is that part of supply chain process that plans, implements, and controls the efficient and effective forward and reverse flow & storage of goods, service and related information from the point of origin and the point of consumption in order to meet customer requirements.

This means that logistics is a part of supply chain process. A supply chain process involves activities that transform natural resources, raw materials and components into a finished product that is delivered to the end customer. (Figure 5) So, logistics forms a part of bigger picture since supply chain focuses on coordination of business functions such as Finance, Marketing and Production, within and across organizations. Hence, logistics can impact as to how well or how poorly a firm and its associated supply chain processes can achieve their goals and objectives. The definition also indicates that the purpose of logistics management is to meet customer requirements. This is very important for several reasons with one being that logistics strategies and activities should be based upon customer wants and needs rather than the wants, needs and capabilities of its own or of other parties. One implication of such focus is that companies must communicate with their customers in order to know what they want. A second reason for the importance of meeting customer requirements is since different customers have different logistical needs and wants, a onesize-fits-all-logistics approach (mass logistics) in which every customer gets the same type and levels of logistic service will result in some customers being over served while others are underserved. Hence, companies should focus on tailored logistics approaches in which customers are provided with logistics services according to their wants.

2 IMPACT OF LOGISTICS

From a macro-economic perspective, logistics have a significant impact on the economy of a country. It can also play an important role in the economic growth and development of a country. The overall, absolute cost of logistics on a macro basis will increase with growth in the economy. In other words, if more goods and services are produced, logistics cost will increase. To determine the efficiency of the logistics system, total logistics cost need to be measured in relationship to gross domestic Product (GDP), which is a widely accepted barometer used to gauge the rate of growth in the economy. Another dimension of logistics is the micro perspective which examines the relationships between logistics and other functional areas in an organization-Marketing, Manufacturing/Operations, Finance and Accounting, and others. Logistics, by its nature focuses on processes that cut across traditional functional boundaries, particularly in todays environment with its emphasis on the supply chain. Consequently interfaces in many important ways with other functional areas. Apart from this, logistics can even impact individual consumers like us. These impacts can be illustrated in the form of economic utility concept, which is the value or usefulness of a product in fulfilling customer needs and wants. The five general types of economic utility are Possession, form, Time, quantity and place. Generally, production activities are credited with providing form utility, Logistics to time, quantity and place utility and marketing with possession utility. 1. Time utility: refers to giving the product/service value by making them available when they are needed by customers. Logistics creates time utility through proper inventory maintenance [e.g. reducing lead time and strategies like Just in Time (JIT)], strategic location of goods/services and transportation. 2. Place utility: refers to making the product/service available where they are needed. Logistics creates place utility primarily through transportation. 3. Form Utility: refers to providing goods/services in the desired form by the customer. For e.g. form utility results when raw materials or components are processed or assembled to make a finished product. In todays business environment certain logistics activities like breaking bulk and mixing products at distribution centers change a products form by changing its shipment size and packaging style. 4. Quantity utility: refers to delivering the proper quantities of a product to where it is demanded. Logistics create this utility through production forecasting, scheduling and inventory control. 5. Possession utility: refers to the value or usefulness that comes from a customer being able to take possession of a product. This utility is primarily created through marketing activities related to the promotion of goods and services. The role of logistics in the economy depends on the existence possession utility as other utilities like form, time and quantity can only exist if the demand of the product/service exists.

3 SCOPE OF LOGISTICS ACTIVITIES

One logistics system does not fit all companies. In fact, there are number of logistics activities that can vary from company to company. Activities that are considered to be logistics-related include, but are not limited to, the following:

1. Transportation: Transportation can be defined as actual physical movement of goods or people from one place to another. This is a very important activity in the logistics system and is often the largest variable cost factor ranging from 40% to 60% of a firms total logistics cost. The logistics manger is responsible for selecting the proper mode of transportation for moving raw materials or finished goods. His decision may also involve developing firms own private transportation as an alternative.

2. Warehousing: Warehousing refers to the places where inventory can be stored for a particular period of time. Logistics management involves number of important decisions related to storage such as how many warehouses, how much inventory, where to locate warehouse, size of warehouse etc. Warehousing has a trade off relationship with transportation as transportation affect storage related decisions because of its direct relationship between them. For e.g. if organizations use a slower mode of transportation, then they must have larger space of warehousing for inventory as they shall have to hold higher inventory levels.

3. Customer Service: Customer service involves making sure that the right person receives the right product at the right place at the right time in the right condition and at the right cost. How logistics influence customer service levels shall be discussed at the later stage of the report.

4. Demand Forecasting: This refers to efforts to estimate product demand in a future time period. Accurate forecasting of inventory requirements and materials and components is essential to inventory control, manufacturing efficiency, and customer satisfaction. This is particularly true in organizations that use a JIT or material requirements planning (MRP) approach to controlling inventories. Logistics Personnel should develop inventory forecast in conjunction with marketing forecasts of demand to assure that the proper inventory levels are maintained.

5. Facility location decisions: Its often said that the success of a retail store depends on three factors: location Location, Location. It can also be said that the success of a particular logistics system is dependent upon the location of the relevant warehousing and production facilities. Facility location

decisions are increasingly important as the configuration of logistics system is altered due to the impacts of multinational trade agreements. A site location change could alter time and place relationships between facilities and markets or between supply points and facilities. Such changes will affect transportation costs and service, customer service and inventory requirements. Therefore, the logistic manager is concerned about facility location decisions.

6. Industrial Packaging: Packing can have both a marketing (consumer packaging) and logistical (industrial; packaging) dimension. Industrial Packaging protects the product during transportation and storage and includes materials such as corrugated (cardboard boxes, stretch wrap, banding, bags and so on. The type of transportation mode selected affects packaging requirements. For e.g., rail or ocean transportation typically requires additional packaging expenditures because of the greater possibility of damage in transit. For ocean transportation, additional packaging might be needed to prevent moisture from invading the products. In analyzing the tradeoffs for proposed changes in transportation modes, logistics managers usually examine how the chain will influence packaging costs. In many instances, changing to premium transportation, such as Air will reduce packaging cost because there is less risk of damage.

7. Inventory Management: Inventory refers to stocks of goods that are maintained for a variety of purposes such as for resale to others as well as to support manufacturing or assembling processes. When managing inventory, logisticians need to simultaneously consider three relevant costs: cost of holding products, the cost of ordering products and the cost of being out of stock. Inventory control has two dimensions: Firstly, assuring adequate inventory levels and secondly, certifying inventory accuracy. Assuring adequate inventory level s requires logistics to monitor current inventory levels and either place replenishment orders or schedule production to bring inventory levels up to a predetermined level. Another dimension is the Certifying inventory accuracy. As inventory is physically depleted to fill consumer orders, a facilitys information system is electronically tracking the status of current inventory levels. To assure that the actual physical inventory levels match that shown I the information system, cycle counts are taken of selected items every period throughout the year. The result of the cycle count will either verify that the physical count and the information system count are in congruence (thus, no adjustments need to be made to the system) or they are different. In the later case, discrepancy is investigated for its cause and the system is adjusted to reflect the actual physical count. Inventory accuracy is essential for assuring that customers orders are filled complete and on time.

8. Material handling: this refers to the short distance movement of products within the confines of a facility. Since materials handling tends to add costs (e.g. labour costs, product loss and product damage) rather than value to logistics systems , managers pursue cost efficiency objectives such as minimizing the numbers of handling and moving the product in a straight line whenever possible. Logistics managers are concerned with the movement of goods into a warehouse (from a transportation vehicle), the placement of goods in a warehouse, and the movement of goods from storage to order- picking areas and eventually to dock areas for transportation out of the warehouse. Materials handling is concerned with mechanical equipment used for short distance movement and includes equipment such as conveyors, forklift trucks, overhead cranes, and automated storage and retrieval system (ASRS).Production Managers might want a particular pallet or container type that is not compatible with logistics warehousing activities. Therefore, the materials handling designs must be coordinated in order to ensure congruity between the types of equipment used and the storage devices they are moving.

9. Order Management and fulfillment: This refers to management of the activities that take place between the time a customer places an order and the time it is received by the customer. Order fulfillment consists of activities involved with filling and shipping customer orders. Order fulfillment is important to logistics because an important physical distribution factor is the time that elapses from when a customer places an order until the customer receives a satisfactory fulfillment of the order. This is also referred to as lead time.

10. Production Scheduling: refers to determining how much to produce and when to produce it. A key interface between production and logistics involves the quantity to be produced with increasing tension between make to order stock (generally involving large production lots and make to order (generally involving small production lots) philosophies. Once a forecast is developed and the current inventory on hand and usage rate is determined, production managers can calculate the number of units to manufacture to ensure adequate market coverage. However, in organizations that have numerous products, manufacturing process timing and certain product line relationships require close coordination with logistics or actual control of production planning/scheduling by logistics.

11. Procurement: refers to the raw materials, components/parts and supplies bought from outside organizations to support a companys operations. The basic rationale for including procurement in logistics is that transportation costs relate directly to the geographic location (distance) of raw materials/parts purchased for an organizations manufacturing needs. Not only this, the quantities

purchased would also affect total logistics cost. So the procurement decisions need to be made in consideration with total logistics costs.

12. Parts and service Support: this refers to after sales support for products in the form of repair parts, regularly scheduled service, emergency service, and so on. These activities can be especially important for distributors of industrial products, and relevant considerations include the number and location of repair part facilities, order management and transportation.

13. Returned Products: Products can be returned for various reasons, such as product recalls, [product damage, lack of demand, and customer dissatisfaction. The logistical challenges associated with returnee product can be complicated by the fact that the returned products often move in small quantities and may move outside of forward distribution channels.

14. Salvage and scrap disposal: Salvage refers to equipment that has served its useful life but still has value as a source for parts, while scrap refers to commodities that are deemed worthless to the user and are only valuable to the extent they can be recycled.Salvage and scrap disposal are amongst the most prominent reverse logistics activities.

Relationship of Operations and Logistics management with Customer Service and satisfaction

1 Overview of Customer Service and Customer Satisfaction

In times of tough competition when many organizations offer similar products in terms of price, features and quality, customer service differentiation can provide an organization with a distinct advantage over the competition. The definition of customer service varies across organizations. Suppliers and their customers can view can view the concept of customer service quite differently. Customer service is the provision of service to customers before, during and after a purchase. (Wikipedia, 2009) According to Turban et al. (2002), Customer service is a series of activities designed to enhance the level of customer satisfaction that is, the feeling that a product or service has met the customer expectation." Customer service is normally an integral part of a companys customer value proposition. From the point of view of an overall sales process engineering effort, customer service plays an important role in an organization's ability to generate income and revenue. A company cannot afford to offend its

customers. From that perspective, customer service should be included as part of an overall approach to systematic improvement.

Customer service is often confused with the concept of customer satisfaction. Customer satisfaction, a business term, is a measure of how products and services supplied by a company meet or surpass customer expectation. It is seen as a key performance indicator within business and is part of the four perspectives of a Balanced Scorecard[1]. (Wikipedia, 2009) In contrast to customer service, customer satisfaction represents customers overall assessment of all element of the marketing mix: product, price, promotion and place. Thus customer satisfaction is a broader concept that encompasses customer service. Customer satisfaction is fundamental to business. The degree to which customers are satisfied determines whether customers make additional purchases and recommend the company and its products to others.

We can think of customer service as something a firm provides to those who purchase its products/services. According to marketers, there are three levels of product: The core benefit or service which constitutes what the buyer is really buying The tangible product, or the physical product or service itself The augmented product, which includes benefits that are secondary to but an integral enhancement to, the tangible product the customer is purchasing. In this context, we can think of Operational customer service as an integral part of first two points i.e. Core benefit or service and the tangible product itself. On the other hand, Logistical customer service can be seen as a feature of the augmented product that adds value for the buyers. Some e.g. of augmented product features include installation, warranties, and after sales service.

2 Importance of Customer Satisfaction in Operational and Logistical Activities

Customer service is a concept whose importance reaches far beyond the logistics and operations area. The numerous other aspects of customer service may add value to the customer, and a firm should include these aspects within its overall marketing effort. But since the Assignment Question is based on Operations and Logistics Management, hence, I shall discuss more specifically on these two these areas.

Extending the thinking based on above discussed topics, it can be understood that a firm can achieve extensive customer advantage by providing superior levels of customer service. Since Operations and Logistics form an integral part of an organization, hence, the roots and the proper channelization of achievement of customer satisfaction gets generated and sustained from these two departments. This is very clear by the fact that these two departments one of the main objectives is to achieve customer service to the satisfaction of customer wants.

1 Importance of Customer Service in Operations Management

The very first objective of operating systems is the customer service to the satisfaction of customer wants. Therefore, customer service is a key objective of operations management. The operating system must provide something to a specification which can satisfy the customer in terms of cost and timing. Thus, primary objective can be satisfied by providing the right thing at a right price at the right time. These aspects of customer service in operations managementspecification, cost and timingare described for four functions in Figure 6 below. They are the principal sources of customer satisfaction and must, therefore, be the principal dimension of the customer service objective for operations managers. [pic]Figure 6: Figure Main aspects of customer service in operations management

Generally an organization will aim reliably and consistently to achieve certain standards and operations manager will be influential in attempting to achieve these standards. Hence, this objective will influence the operations managers decisions to achieve the required customer service. Another major objective of operating systems is to utilise resources for the satisfaction of customer wants effectively, i.e., customer service must be provided with the achievement of effective operations through efficient use of resources. Inefficient use of resources or inadequate customer service leads to commercial failure of an operating system. Operations management is concerned essentially with the utilisation of resources, i.e., obtaining maximum effect from resources or minimising their loss, under utilisation or waste. The extent of the utilisation of the resources potential might be expressed in terms of the proportion of available time used or occupied, space utilisation, levels of activity, etc. Each measure indicates the extent to which the potential or capacity of such resources is utilised. This is referred as the objective of resource utilisation. Hence, Operations management is also concerned with the achievement of both satisfactory customer service and resource utilisation. An improvement in one will often give rise to deterioration in the other. Often both cannot be maximised, and hence a satisfactory performance must be achieved on both objectives. All the activities of operations management must be tackled with these two objectives in mind, and many of the problems will be faced by operations managers because of this conflict. The type of balance established both between

and within these basic objectives will be influenced by market considerations, competitions, the strengths and weaknesses of the organization, etc. Hence, the operations managers should make a contribution when these objectives are set.

2 Importance of Customer service in Logistics Management

An important determinant of customer satisfaction is how well the product performs. However, in competitive markets, achieving a competitive advantage by providing a product with outstanding performance is difficult since the major players are each striving to gain market share, product performance becomes similar. Similarly, price parity can be achieved with amazing speed. Thus, businesses can, however, have a positive impact on customer satisfaction by providing outstanding logistics services. Since high levels of logistics services are not easily copied and are sometimes ignored as a competitive tool, they can be successfully used to develop a sustainable competitive advantage. Providing superior logistics service has been used to develop a strategic advantage by many firms such as American President Companies (railway), Distribution Centers, Inc. (warehouse), Schneider National (motor carrier), Xerox (manufacturing) and so on. This is because of the growing consumer awareness of the price/quality ratio and the special needs of the todays customers who are time conscious and demand flexibility. Manufacturing Depts. can produce a good product at the right cost, and marketing can sell it: but if logistics does not deliver it when and where promised, the customer will be dissatisfied. Thus the customer service is really the fuel the drives the logistics supply chain engine. Having the right product, at the right time, in the right quantity, without damage or loss to the right customer is an underlying principle of logistics systems that recognize the importance of customer service.

How managers can understand as to how Operations and Logistics network DESIGN INFLUENCE Customer Service and satisfaction

1 Role of Operation and Logistics Managers In various elements of Customer service

As discussed earlier, attainment of customer satisfaction is amongst the key objectives of the operations and logistics dept. of an organization. Hence, its important for the respective managers to recognize this fact and work accordingly towards accomplishment of this goal. They must determine what customers need in terms of product and its service levels and thus deliver upon these needs in the most cost-effective and efficient manner. Their goal should be to do it right the first time, to prevent complaints ever flowing.

In order to do this efficiently, they must carefully understand the basic elements in the customer service and how their role can affect the outcome of each element. Each of these elements comes either before, during or after the sale. Some major basic elements of customer service related with operations and logistics network design are:

1. Pre-transaction Elements: This element is directly or indirectly related to logistics and operational activities. They must be formulated and in place before the organization can consistently implement and execute its customer service activities. Pre-transaction elements include the following: a) A written statement of customer service policy: This policy would define service standards, which should be tied to customers needs. This policy binds the respective managers in the long run because it includes metrics for tracking service performance and the frequency of reporting actual performance, and be measurable and actionable. b) Customers provided with a written statement of policy and proper organization structure: A written statement lets the customer know what to expect and helps to safe guard against unreasonable expectations. It should provide the customer with the information about how to respond if expected service levels are not achieved by the firm. Customers should also have easy access to individuals within the organization who can satisfy their needs and questions. c) System flexibility: Unforeseen events such as labor strikes, material shortages, and natural disasters can happen anytime and can hamper the whole operating system and logistic design. Thus, proper flexibility and contingency plans should be built into the system by the managers which allow the organization to successfully respond to such contingencies. d) Management services: Providing the customers with help in merchandising, improving inventory management and ordering are example of some of the services an organization may provide to its customers. These may be developed by managers by providing in the form of training manuals, seminars, or one to one consultations. This can also be accomplished through face-to-face negotiations as well as through electronic data interchange (EDI). For example, Black and Decker and Procter and Gamble involve customers such as Wal-Mart in setting logistics service levels. This extra service takes the form of developing special packages (e.g., drill bits are packed with drills) and special deliveries. Increased sales and satisfaction from Wal-Mart to these vendors are attributed to the provision of these special services. e) Discussion about customer expectations: Customers have logistics service performance expectations even before a transaction is made. These pre-transaction expectations are typically based on previous experience with the firm, promotional materials, or discussions with salespeople. The previous discussion suggests that logistics managers should determine customers' initial (pre-contact)

logistics performance expectations. Also, logistics managers need to monitor their own service levels as well as those of competitors.

Decisions relating to the pre-transaction elements tend to be relatively stable, longterm decisions that are changed infrequently. This provides some stability for the customer in terms of expectations.

2. Transaction Elements: These elements normally include the following elements: a) Availability of Item: This refers to the ability of the company to satisfy customer orders with appropriate goods within a specified time. Thus operation manages must ensure that the desired products are manufactured in the right quantity, price and quality; whereas, the logistics manager must ensure that it reaches the target customer on committed time and in safe condition. b) Stockouts and Backorders: Inventory should be monitored time to time by operation and logistics managers in order to track potential problems. Firstly, the managers should maintain proper stock of inventory so that the problem of backorder and stock outs never occur. But if it occurs due to unforeseen circumstances, they must endeavor to maintain customer good will by offering a suitable substitute, drop shipping from another location to the customer if possible, or expediting the shipment once the out of stock item arrives. c) Paperwork: The managers must devise a system which has the ability to efficiently and accurately complete necessary paperwork that cater to the customers' systems. d) Order Information Availability: Customers expectations regarding access to all types of information related to their orders have increased dramatically because of the availability of relatively inexpensive computing power. This includes information on inventory status, order status, expected or actual shipping date and back order status .Tracking order performance is important because customers pay close attention to problem and exceptions to delivery. Hence, Backorder should be tracked by managers according to customer and by product type, so that the recurring problems become visible and can be addressed in a timely fashion. e) System Accuracy: In addition to the ability to rapidly obtain a wide variety of data, customers expect that the information they receive about order status and stock levels will be accurate. Hence, Managers should note and correct inaccuracies as quickly as possible. f) Consistency of Order cycle: The order cycle is the total time from customer initiation of the order through receipt of the product or service by the customer. Customers tend to be more concerned with the consistency of the lead times than with absolute lead time. So it is important for mangers to monitor actual performance in this regard and take corrective action if needed. They must also emphasize on reducing the total order time because of today's time-based competition scenario.

g) Special Handling of shipments: This could happen because some shipments need to be expedited or has unique shipping requirements. The managers must determine which customers and situations warrant special treatments and which do not. h) Transshipments: For companies with multiple locations, some sort of policy should be in place concerning transshipments as opposed to backordering or drop shipping directly to a customer from more than one location i) Order Convenience: This refers to how easy it is for a customer to place an order. Customers prefer suppliers that are user friendly. Order related problems should be monitored, identified, noted and corrected by managers by talking directly to customers. j) Product substitution: This occurs when the desired product by the customer is not available but is replaced by a similar product. Thus the ability to provide a customer with acceptable substitutes can significantly improve the firms service levels. The operation manager should check with customer before substituting and must work with its customer to develop product substitution policies and should keep its customers informed of those policies. 3. Post transaction Elements: an important contributor to long-term customer satisfaction is the level of satisfaction that immediately follows a sale (post-purchase satisfaction) the elements related to this support the product/service after the customer has received it. Retaining and satisfying current customers can be much more profitable than finding new customers. For e.eg. Ford Motor co. estimated that the lifetime value of a typical customer is $178,000(Walther, Upside Down Marketing)This includes the following elements: a) Installation, Warranty, repairs and Service parts: These elements are an important consideration in building loyal customers thus; the logistics managers must carefully devise the respective policies and also implement them properly. They must develop a system which is able of quickly replacing defective or damaged items and subsequent follow-up to determine if user is happy with the purchase. b) Product Tracking: Also referred to as product tracing, is an important customer service element. For e.g. in order to inform customers of potential problem, firms must be able to recall potentially dangerous products from the market once the potential hazard has been identified. c) Customer Complaints, Claims, and returns: Logistics systems are designed to move products to customers, so the cost of non routine handling, particularly of small shipments such as customer returns, tends to be high. Customer returns go through the logistics process in reverse: hence the term reverse logistics is used. To resolve customer complaints, manager must devise accurate online information system to process the data from the customer, monitor trends, and provide the customer with the most current information available.

2 Steps taken by the Managers to ensure Efficient Customer Service:

All the departments of an organization should work simultaneously in conjunction with the organizations mission of achieving high customer satisfaction yet high profitability. What is the use of a great product manufactured by the Operations dept. if it is not readily available to the consumer because of improper marketing and logistics network design? Similarly, it may be that the logistics chain works efficiently enough but the product itself that is manufactured is not up to the mark! Hence, it is important for the manager create a customer service strategy by keeping in mind the above mentioned customer service elements. Some of the important methods for establishing customer service strategies can be as follows:

1) Determining customer service levels based on customer reactions to stockouts at the retail level: Most manufacturers do not sell their products directly to the end user. Instead, they sell them through using the distribution chain involving wholesalers, retailers or other intermediaries. Thus, the stockout situation at manufacturers warehouse doesnt mean an out of stock product at the retail level also. For this reason, it becomes difficult for the manufacturer to determine the actual effect of Stockouts on the end user. One way to establish desirable levels of customer service at the retail level is to determine the customers response to stockouts, which can include substituting another size of the same brand, switching brands, or perhaps going to a different store to buy the items. Understanding consumer behaviors at different levels in the channel is critical in formulating customer service strategies. But stockouts have different effects at various levels of channels of distribution. For E.g. lets consider two cases. Firstly, in an infant formula industry, the manufacturers do not spend much money on media advertising and price promotion, instead, they like to spend their marketing dollars on giving samples to the doctors and the hospitals who in turn give them to new mothers. New mothers are often told not to switch brand because the child may not respond favorably to other brand. Also the mother believes the doctor totally, so in case of unavailability of that particular medicine at the pharmacy, would in fact go to another chemist rather than substituting the brand. Thus, the penalty of being out of stock at a particular retail store is low for the manufacturer because majority of the customers will switch stores. The penalty can only be higher if there are frequent stockouts on such item which may cause the customer to switch stores permanently.

However, if we study the same case at the context of a Doctor or a hospital, the penalty of running out of stock shall be very high. For e.g. If abc medicine is not available then the doctor may prescribe xyz medicine. ABC medicine shall lose all the business at that hospital because the doctor shall continue to prescribe the other medicine to all new mothers. Thus, hospitals and doctors require a very high level of

customer service, which may mean in-stock availability above 99% and a very short lead time of 24-48 hours.

Hence, when the managers are aware of the implications of stock outs at various levels, they can make adjustments in the inventory levels, order cycle times, fill rates, transportation options and other strategies that will result in higher levels of product availability.

2) Cost/Revenue Trade-Offs: As part of marketing, the outbound logistics and operation serves a particularly important advisory function. Some marketing professional still believe that most important function of an organization is to increase sales. The result is that the customer service goals and objectives are kept at unreasonably high levels that ignore the costs incurred in achieving them. The operations department can play an important advisory role by suggesting whether the required product/service by the customers can be produced or not at the given cost, time and quality. The logistics department on the other hand can calculate the cost at different levels of supply chain and suggest where the cost cutting can be done by advising alternative means of delivering(like size of inventory, no. of shipping points, warehousing, transportation etc.) the goods and services. The total of logistics expenditures such as carrying inventory, transportation, information/order processing can be viewed as companys expenditures on customer service. An objective of an organization is to provide goods/services at the lowest logistics cost but at a highest customer service level which is a tricky situation to deal with. In some cases, however, an organization reduces its total cost while sustaining improved service. But this is only possible by taking the perspective of the total system in the long run. For e.g. if a major department store wishes to increase its retail-in stock levels to 98%, Point-ofsale(POS) data that track actual sales by the store and by SKU might be used. Thus, it has to invest in information technology. To maximize its leverage, it may also want to invest in Electronic Data Interchange (EDI) system. Hence, this could cost the chain about $200,000 per store. Thus, the management appears to be making a trade-off: By investing in information Technology, the store is increasing its costs to improve customer service levels. 3) ABC analysis/Paretos law: The Pareto principle (also known as the 80-20 rule) states that, for many events, roughly 80% of the effects come from 20% of the causes. It is a common rule of thumb in business; e.g., "80% of your sales come from 20% of your clients. The logic behind ABC analysis and Paretos law is that some customers and products are more beneficial to a firm that others in terms of profitability, revenues, segment growth rates, or other important factors. Hence, using profitability as an example, the most profitable customer-product combinations should receive the most attention and hence customer service levels. Profitability should be measured according to products contribution toward fixed cost and profits. A lower level of

customer service doesnt mean that the service provided is less consistent. In other words, whatever the service level, 100 percent consistency of service is provided whenever possible. 4) Customer service Audit: This is used as a means of evaluating the level of a service a company is providing and as a benchmark for assessing the impact of changes in customer service policies. The audit typically includes four distinct stages: a) External customer service audit b) Internal customer service audit c) Identifying opportunities and methods for improvement d) Establishing customer service levels. The objectives of customer audit are to: a. Identify critical customer service elements. b. Identify how performance of those elements is controlled c. Assess the quality and capabilities of the internal information system

5) Enforcing Quality: Quality plays an important role in deriving customer satisfaction by the companies. Earlier, good quality product and services were seen as order winners. But now, in the era of fierce competition, good quality is seen as order qualifiers. Hence, its important that the operational and Logistics managers place prime importance to enforcement of quality standards, not only during the production process, but also prior and after that in the form of proper after sales services. Total Quality Management comprising Six Sigma has been as a candid effort by various companies to achieve high levels of quality management at all levels of business organization.

6) Encourage feedback: Since logistics personnel, i.e., logistics and transportation managers, as well as dispatchers and truck drivers, interface directly with their customers, they are in an excellent position to have a positive impact on customer satisfaction. Obviously, it is critical to achieve high levels of performance on the most important logistics services, such as availability and delivery time. Little things, however, also can make a difference. For instance, at Atlanta-based Genuine Parts, the logistics staff is authorized to procure an out-of-stock part from a competitor rather than fail to deliver a key customer's order. Thus those involved in the logistics function--from manager to truck driver--should therefore be encouraged to elicit complaints from customers. Customers whose complaints are promptly and satisfactorily handled by logistics managers will tend to have higher repurchase behavior and generate greater positive word-of-mouth publicity than customers whose complaints have not been satisfactorily handled.

Case studies

1 Increasing Customer Satisfaction at DSC Logistics

Through its implementation of i2 Transportation Modeler and i2 Transportation Planner, DSC Logistics has replaced its manual order-fulfilment system, enabling greater customer service, lower freight costs, and a larger customer base. With the ever-increasing velocity of business, transportation and logistics providers must continue to find new ways to meet the accelerating requirements of their customers. And, while accelerating transportation operations have become more of a priority for logistics providers customers, reliability and cost reduction remain as vital as ever. With more than 40 years of experience in the transportation business, DSC Logistics is no stranger to customer requirements for increased speed, reliable delivery, and reduced freight costs. DSC Logistics bases its operations on a philosophy called sense-and-respond. This philosophy is focused on identifying and understanding customers needs, and quickly meeting those requirements. Executives at DSC Logistics recognized that in order to meet the objectives of the sense-and-respond philosophy, the companys value chain needed to match their commitment to customer service. That proved to be difficult because the companys supply chain management systems were outdated and limited in their capabilities. We had been using the same systems for a number of years, and we were looking to expand our capabilities beyond what we were currently able to do in-house, said Paul Brand, DSC Logistics Senior Manager, Information Technology. Our customers continue to push us to help them meet their objectives, so we need to always stay ahead of where they are from a technology perspective. DSC Logistics realized it needed to embark on a value chain engineering initiative to maintain superior levels of customer service. This initiative had two primary goals: to automate the companys timeconsuming manual order-fulfillment system and to centralize DSCs planning and logistics functions, which were operating in seven regions across the United States.

1 Why i2?

DSC Logistics began researching supply chain solution providers with increasing customer satisfaction as the primary driver. We were looking for a software company that could help move us toward the future and continually provide new features within our software to help us meet our customer objectives, Brand said. The company found that i2 was the technology leader with both the functionality depth and the operating platform breadth that it was looking for. When we went out to look for packages, the i2 solution had the most depth of functionality compared to other vendors, Brand said. When we looked at i2 from a technology perspective, it had multi-platform capabilities. At that time, i2 was migrating to client server, graphical user interfaces technology of that Web-based natureand those were the things we were looking for. i2 Supply Chain Management synchronizes all critical transportation business processes, resulting in optimal cost and service performance, and addresses three key drivers in the transportation industry: lower operational costs, improved asset utilization, and improved customer service levels.

2 i2s Contribution

DSC Logistics implemented i2 Transportation Planner, i2 Transportation Manager, and i2 Transportation Modeler. After the Transportation Planner implementation was complete throughout the organization, the company implemented Transportation Planner on a national level, with the load planning and logistics functions centralized at DSC Logistics national service center in Chicago. The company was quickly using i2 solutions in conjunction with its existing carrier network to help customers find the best logistics solution available. Customers send us their orders. We then utilize Transportation Planner to come up with multi-stop truckloads and select carriers, Brand said. Then Transportation Manager is used on the execution side, managing the different payments, the order management delivery status, and appointment statuses, and that information is provided back to our customer. i2 solutions have enabled DSC Logistics to move from a time-consuming, manual order-management system to a more efficient automated one. Before i2, we had homegrown systems. We had tools that allowed our users to manually link up multiple orders and combine them in a single truck, Brand said. The i2 solutions do this in an automated fashion. We send anywhere from 50 to 100 to 500 orders down to Transportation Planner. It will come back and give us a solution that will be cost-effective.

3 DSC Logistics Results

Through its i2 implementation, DSC Logistics created a hub for all of its planning and logistics functions at its national service center. Centralizing these processes has enabled DSC Logistics to redirect resources for optimized business expansion. The national service center provides the ability to actually expand and grow and not to have to deploy resources at each individual region, Brand said. It centralizes the functions of carrier management, freight payments, customer invoicing, load optimization, load building, carrier compliance, and the coordination of order statuses with our customers. As a third-party logistics provider, DSC Logistics offers substantial cost savings to mid-sized customers by leveraging their freight with that of its other customers. Transportation Modeler, Transportation Planner, and Transportation Manager, are adding efficiency and velocity to the load-planning process, enabling DSC Logistics to deliver even more value to its customers. The i2 products are helping us in providing the least cost solutions by combining multiple orders to go out on a single truck, Brand said. They have also removed inefficiencies in our warehouse operations. We can now load to a single truck versus having to bring in multiple carriers. That increased efficiency across the board has allowed DSC Logistics to grow its business, while remaining focused on customer service. The i2 solutions have helped us become a high-velocity business by allowing us to expand our operation, bring on more customerslarger customersand utilize automated tools, Brand said.

2 York Casket case study

The York Group is the second largest manufacturer of caskets in America, and is a leading manufacturer of all-wood caskets. Founded in 1892, the company was purchased in December 2001 by Pittsburgh-based Matthews International Corporation, a leading manufacturer of bronze memorials. York manufactures wood caskets in York, PA. Like many manufacturers, York faces an increasingly competitive marketplace. To meet this competitive challenge, For York to remain competitive and meet Matthews operating objectives, division management needed to reduce unit costs by 20 to 40 percent. To reach this goal, York partnered with H.B. Maynard and Company, Inc. for assistance in converting the wood casket plant to a Lean Continuous Flow operation.

With input from corporate management, York managers set goals for the Lean initiative, which included:

Reducing direct labor unit costs by 20 percent or more Cutting production response time in half Reducing inventory costs and product handling damage Improving first pass quality Improving plant space utilization Building a continuous improvement culture The ultimate goal was to increase profitability while improving quality, Cameron said. We knew we had to make changes, or the business wouldnt be able to move forward. Early in the planning process, York management agreed on Key Principles to help set the vision for their Lean conversion, and the future operating strategy for the plant. Yorks key principles are: Committed leadership Continuous flow production Quality built-in Safe, orderly and clean workplace Flexible cross-trained team Visual workplace Standard work methods Continuous improvement These principles were posted in conspicuous locations throughout the plant, and reviewed with supervisors and employees in a variety of settings. The intent was to begin to establish the operational culture for future plant operations.

1 York Gets the MOST out of Lean, by Design

The strategy recommended by Maynard was to first design a Lean Manufacturing system using sound industrial engineering tools, including value-stream analysis, work method design and work balancing using engineered time standards, and kanban-controlled work flow. This approach, in contrast to Kaizen events, would assure predictable, sustainable results. To improve the operation presented a variety of challenges. A push production system would need to be converted to pull. Standard, documented work methods would be required. Continuous work flow and extensive worker cross-training were needed. Ultimately, a complete change would be required in everyones approach to their jobs, from the hourly worker to the plant manager. Maynard helped us move from batch to continuous flow, Cameron said. We established the vision for continuous flow by first studying how we work and then engineering a new method to improve both product quality and productivity. The team decided that the best place to begin the Lean conversion was closest to the customer, in the casket trim area. Like the rest of the plant, this area suffered from many typical ailments of a non-Lean operation, including product quality problems, inconsistent work methods, batch production, excessive inventory and extensive non-value added work. The York and Maynard team began by reviewing work methods and work flow in three of the plants casket trim processes: hardware, interior sew and interior trim. Using the Maynard Operation Sequence Technique (MOST), the new methods were measured and standard times determined. An improved work flow could then be designed. For example, the plants trim department previously featured workstations located over a large area, with inconsistent workplace layouts. To correct this problem, the team first determined the best methods and standard times to complete the work. With this information, a trim assembly line was designed to replace the individual trim benches. In the hardware area, parts were spread over a large area, requiring workers to take unnecessary steps to retrieve parts. In addition, hardware assembly was located away from the main production line, furthering inefficiency. The hardware area was redesigned to directly feed parts to the production line. In the interior sew department, the old batch process caused inefficient part flow, as parts were placed in the casket and then transported to the trim bench. Like the hardware department, interior sew was not integrated into the main production line. Best methods and standards were developed to better balance the work. To establish continuous flow, line loading rules, kanbans and visual signals were designed. The area layout was redesigned for integration into the main production line.

2 Making the Move

With the design complete, the team began to prepare for the big move. A revised layout was developed using computer-aided design. Puzzle pieces were used to brainstorm the best way to plot the new plant layout. Prior to the move, the plant floor was marked with new equipment locations. All equipment required for the new layout were identified and coded on the CAD layout and the plant floor. Where required, material storage devices were purchased or built prior to the move. The layout was reviewed with all employees, and they were given the opportunity to provide additional input on workstation design. The team worked together to develop a system for the move, using many 5-S principles. 5-S helps to create a Lean environment that is clean, orderly and safe, while opening the company culture to change and instilling new discipline. Motivating employees to embrace a culture of change figured to be a challenge, as Yorks employees average 17 years of experience. But Cameron noted that the changes were received favorably by employees because of involvement and the focus on creating an improved workplace. The key was communicating to employees as often as possible, Cameron said. It was important to get their feedback and empower them to create better ways to perform the work. We also used incentives, such as providing rewards for suggestions, which helped to motivate employees further.

3 York Reaches Goals

This initiative provided an immediate impact on Yorks productivity. Shortly after implementing the changes, York saw a 20 percent reduction in labor hours per casket in the post-finish area. Defects were reduced by 48%. Production response time in the post-finish area was reduced dramatically, from three hours to one hour. In turn, the value added ratio increased from 19 percent to 50 percent. And with its workforce now tuned into continuous improvement, York expects future productivity gains. The key differentiator between the Maynard approach and the typical approach to Lean is in the application of industrial engineering tools and design. With this truly engineered approach, the best solution is arrived at early, and trial and error is minimized. The casket trim area is the first of four major project phases. Results in the second phase (casket assembly) promise to be even better than the first. Sew and trim had already been improved by a lean project, so these results are even more impressive, Cameron noted. Now, thanks to Maynards help, weve been able to become even leaner. It was a great effort, and we expect it to pay off for many years to come.This has also boosted sales topped with greater customer service levels by improved quality, competitive cost and delivery on time.

conclusion

Creating customer value is the driving force behind a companys goals. And since Operations and Logistics form one of the most important components of a company, hence their respective managers and personnel should adhere to the companys goals, of creation of customer satisfaction, by delivering the best to achieve the best for their organization.

Operational and Logistical strategy affects customer value hence, its important to choose appropriate strategies to match customer value, in terms of many dimensions like price, quality and availability.

Todays customers have become more knowledgeable and experimenting, whereby brand loyalty has taken a back seat if there is any lapse in the service or quality. Customer access to information about the availability of product and its status of orders and deliveries has also become an essential capability. But this also creates an opportunity for companies to learn about customers and their preferences and to create more and more ways of interacting with them, because, there is no real customer value without a close relationship with them. Adding services and relationships is a way for companies to differentiate their offerings in the market and attract customer base. This can be seen in the two case studies discussed in the report. In case of DSC Logistics, in order to handle improper speed and inefficiency to order-fulfillment system, inability to keep pace with customers technology requirements and difficulties in integration of regional-based load planning and logistics, they decided to automate the order management process through its implementation of i2 Transportation Modeler and i2 Transportation Planner, centralized planning and logistics functions and reduced inefficiencies in their warehouses. Hence, resulting in greater customer service, lower freight costs, and a larger customer base because of increased cost savings for customer and spurred company growth through reduced resource deployment.

York Group, on the other hand, to increase profitability while improving quality, designed the strategy of Lean Manufacturing system. They converted the push production system to pull and started using standard documented work methods. Also, a Continuous work flow move from batch system was implemented, extensive worker cross-training was included, the hardware area was redesigned to directly feed parts to the production line, revised layout was developed using computer-aided design and a system for the move was developed using many 5-S principles. In fact, a complete change was incorporated in everyones approach to their jobs, from the hourly worker to the plant manager. As a result, there was a reduced direct labour unit costs by 20 percent, production response time was cut in half, inventory costs & product handling damage were reduced , quality and plant space utilization

improved thus paving the way for a continuous improvement culture in the organisation for higher customer service levels.

It may appear as to what is the need of Customer service and satisfaction for a company such as York Group who manufactures Caskets, that is, something to cater to dead people who cant appreciate any efforts like best quality, put into the caskets. The answer to this is simple and emotional. Whenever someone dear or near passes away, relatives and friends get very emotional and want to bid a final goodbye in the most special way by performing all the last rituals in the most appropriate and memorable manner. Hence, the loved ones left behind want to make sure that the casket is in the best quality and is delivered on time without hassles. Thus, for a company like York Also, customer satisfaction becomes very important.

The production department may produce the best product in terms of quality, price and design, but if the logistics chain is inappropriate with various loopholes and inefficiency, then the whole organisation could falter to its competitors. Similarly, best logistics management cant ensure success if the product itself is faulty or of low standard. Not only these two departments, but if the marketing doesnt market the product/service well and the finance depts. doesnt provide adequate funds, the whole purpose of customer service and equitable profitability shall tail off.

These two case studies clearly demonstrate the role of logistic and operations chain (operations management which operations manager perform) to cultivate customer satisfaction and to achieve the organizations goal, mission and vision.

Not only this, if all the areas of organisation work well with the best possible product design, quality, funds, price, time etc. , then also, the only way for a companys success is by providing excellent customer service, before and after the sale is made, as Customer Service and satisfaction are the key to an organizations prosperity.

I conclude my assignment with precious words from very successful professor of marketing, entrepreneur, business author, and hall-of-fame keynote speaker, Tony Alessandra who says

"Being on par in terms of price and quality only gets you into the game. Service wins the game."

references

Langley, C.J., Coyle, J.J, Gibson, B.J, Novack, R.A. and Bardi, E.J. (2009) Managing Supply Chains-A logistics Approach (8th edition), South-Western Cengage Learning, Canada.

McGrath, B. (2004) Business Logistics and Operations Management (Custom Edition), Pearson Custom Publishing, Harlow, Essex.

Stevenson, W.J. (2002) Operations Management (7th edition), McGraw-Hill School Education, Boston.

Simchi-Levi, D., Kaminsky, P. and Simchi-Levi, E. (2008) Designing and Managing Supply Chain: Concepts, Strategies and Case Studies (3rd edition), McGraw-Hill Irwin, New York, U.S.A.

Murphy, P.R., and Wood, D.F. (2003) Contemporary Logistics (8th edition), Prentice Hall, U.S.A

Kumar, A. and Suresh, N. (2008) Production and Operations Management (2nd edition), New Age International, New Delhi, India

Lambert, D.M., Stock, J.R. and Ellram, L.M. (1998) Fundamentals of logistics Management, McGraw-Hill Higher Education, London

Sharma, A., Grewal, D. and Levy, M. (1995), The Customer Satisfaction -- Logistics Interface, Journal of Business Logistics, 16, 2, 1-22.

Wikipedia (2009) Customer satisfaction, Wikipedia: the free encyclopedia, *online+ (viewed 12 July 2009) Available from

Wikipedia (2009) Logistics management, Wikipedia: the free encyclopedia, *online+ (viewed 12 July 2009) Available fromA detailed case study of Federal Express Logistics Management

Submitted to:Meenakshi Negi | Submitted by:Chandan SinhaCharu SinghGagandeep KaurGaurav Sharma |

FedEx is a supply chain company. We are very cognizant of trying to make our customers' supply chain more efficient. But, at the same time, we became very focused on our internal supply chain." - Edith Kelly-Green, Vice President and Chief Sourcing Officer, FedEx Corporation. "FedEx's Supply Chain Services represents the best of the best and the organization has set an example ... for other companies to follow." - Bo Anderson, Executive in Charge of Worldwide Purchasing, GM

1.

| Introduction | | | | | | | | | | | | | | | | | | | | | |

Introduction FedEx Corporation, originally known as FDX Corporation, is a logistics services company, based in the United States with headquarters in Memphis, Tennessee. The name "FedEx" is a syllabic abbreviation of the name of the company's original air division, Federal Express, which was used from 1973 until 2000. FedEx Corporation is a Delaware corporation, incorporated October 2, 1997. FDX Corporation was founded in January 1998 with the acquisition of Caliber System Inc. by Federal Express. One major change affected Federal Express. In January of 1998, Federal Express changed to FDX

Corporation.With the purchase of Caliber, FedEx started offering other services besides express shipping. Caliber subsidiaries included RPS, a small-package ground service; Roberts Express, an expedited shipping provider; Viking Freight, a regional, less than truckload freight carrier serving the Western United States; Caribbean Transportation Services, a provider of airfreight forwarding between the United States and the Caribbean; and Caliber Logistics and Caliber Technology, providers of logistics and technology solutions. FDX Corporation was founded to oversee all of the operations of those companies and its original air division, Federal Express. Federal Express is an express transportation company, founded in 1973 by Frederick W. Smith. During his college years, he recognized that the United States was becoming a service-oriented economy and needed a reliable, overnight delivery service company designed to solely transport packages and documents. He wrote a Yale term paper on this idea, and received a C. His professor thought it would never work. Fortunately for Frederick Smith, he didnt take it to heart and ended up building that company he dreamed of. He found investors willing to contribute $40 million, used $8 million in family money, and received bank financing. He started Federal Express with over $80 million, making it the largest company of its time ever funded by venture capital. Background Federal Express became successful so quickly because all their competition became weaker at the same time. They built a super-hub in Memphis, Tennessee, where all packages from the United States would be loaded on the correct transport and shipped out each night. As of April 2010, Federal Express has over 143,000 workers worldwide, and delivers more than 3 million express packages to 200 countries daily. FDX Corporation now includes Federal Express, Roadway Packaging System (RPS), Viking Freight, Roberts Express, and Caliber Logistics. Even though FDX owns all these companies, Federal Express still remains independent. FDXs strategy is to corroborate on selling and synergies for all FDX companies, but run operations separately and keep each companys strengths and markets separate. Therefore, some information will be about FDX, but most will be for Federal Express as its own company. For example, Frederick Smith, the founder of Federal Express, is now the Chief Executive Officer of FDX. Federal Express CEO is currently Theodore Weise. In January 2000, FDX Corporation changed its name to FedEx Corporation and re-branded all of its subsidiaries. Federal Express became FedEx Express, RPS became FedEx Ground, Roberts Express became FedEx Custom Critical, and Caliber Logistics and Caliber Technology were combined to make up FedEx Global Logistics. A new subsidiary called FedEx Corporate Services was formed to centralize the sales, marketing, customer service for all of the subsidiaries. In February 2000, FedEx acquired Tower Group International, an international logistics company. FedEx also acquired WorldTariff, a customs duty and tax information company, TowerGroup and WorldTariff were re-branded to form FedEx Trade Networks.

FedEx Corp. acquired privately held Kinko's Inc. in February 2004 and rebranded it FedEx Kinko's. The acquisition was made to expand FedEx retail access to the general public. After the acquisition, all FedEx Kinko's locations exclusively offered only FedEx shipping In June 2008, FedEx announced that they would be dropping the Kinko's name from their ship centers, with FedEx Kinko's changing to FedEx Office In September 2004, FedEx acquired Parcel Direct, a parcel consolidator, and re-branded it FedEx SmartPost In December 2007, the Internal Revenue Service of the United States 'tentatively decided' that FedEx Ground Division might be facing a tax liability of $319 million for 2002, due to misclassification of its operatives as independent contractors. Reversing a 1994 decision which allowed FedEx to classify its operatives that own their own vehicles, the IRS is auditing the years 2003 to 2006, with a view to assessing whether similar misclassification of operatives has taken place. FedEx denies that any irregularities in classification have taken place, but is facing legal action from operatives claiming benefits that would have accrued had they been classified as employees. On October 22, 2008, the Internal Revenue Service withdrew its tentative assessment of tax and penalties for the 2002 calendar year ($319 million plus interest) against FedEx Ground Package System, Inc. (FedEx Ground) relating to the classification of FedEx Grounds owner-operators for federal employment tax purposes. In June 2009, FedEx began a campaign against UPS and the Teamsters union, accusing its competitor of receiving a bailout in an advertising campaign called "brown bailout". FedEx staff are regulated under the Railway Labor Act. Mission Statement The Mission Statement of FDX is "to produce superior financial returns for stockholders, by providing high value-added logistics, transportation and related information services through focused operating companies". This mission statement shows that FDX has a clear focus: 1. The main focus is to bring returns to stockholders. 2. They will emphasize adding value above and beyond just their service of transporting an object from one place to another. 3. Their focus of operations will be logistics, transportation, and related information. This mission statement is focused enough to keep FDX from diversifying into for example, food products; yet vague enough to allow growth in all of those areas.

Philosophy FDX and Federal Express, in particular hold a People-Service-Profit philosophy. The People goal is the continuous improvement of managements leadership. The Service standard is 100 percent customer

satisfaction. The Profit goal is much like any other companys goal, and is essential to long-term viability. This philosophy governs how FDX runs its business, and defines strategies. Federal Express Five-Point Strategy Federal Express has five strategies that govern business tactics. These are to improve service levels, lower unit costs, establish international leadership and sustain profitability, get closer to the customer, and maintain the People-Service-Profit Philosophy. Major Strategic Issues FDX is focused on three primary growth strategies. A collaborative sales process that leverages their shared customer relationships, aggressive global marketing of the broad FDX portfolio to targeted prospective customers, and a strategic application of information systems to reduce costs and improve customer access and connectivity. FDX Corporate Subsidiaries All subsidiaries of FDX follow the focus of their mission statement: logistics, transportation, and related information. Since their mission statement allows for growth, they also have room to acquire more companies whose operations are similar. Currently, these are the names and descriptions of the companies under FDX, other than Federal Express. 1. RPS: North Americas second-largest provider of ground small-package delivery. It also services 28 European countries and Puerto Rico. 2. Viking Freight: The premier brand name in less-than-truckload freight movements throughout the western United States. 3. Roberts Express: Engineer and execute time-specific, door-to-door surface and air-charter delivery solutions that solve special-handling challenges for FDX customers within North America and Europe. 4. Caliber Logistics: Develops and implements customized logistics solutions that help FDX customers manage costs, improve customer service and focus on their core business activities. Federal Express still accounts for 83 percent of total revenues. The next largest is RPS, bringing in 11 percent of FDXs total revenues. Customers, Markets, and Services Federal Express serves business-to-business, business-to-individual and individual-to-individual accounts. Federal Express markets include over 200 countries where 90 percent of all the worlds revenues originate. Federal Express provides both document and freight deliveries as well as supporting services. Competitors

Federal Express competitors include: United Parcel Service, Airborne Express, Emery Worldwide, DHL Worldwide, BAX Global, and United States Postal Service. Federal Express holds 46.5 percent, the largest portion, with UPS and Airborne Express as the largest competitors. Company Analysis This section will show the services Federal Express provides, their strengths and weaknesses as a company, opportunities and threats, and current problems and issues. Services Federal Express provides delivery on documents and packages both domestically and internationally, as well as supporting services. In the United States Internationally Supporting Services Priority Overnight Standard Overnight Same Day | Priority | Economy | interNet Ship | | Collect on Delivery | | |

| Next Flight

| Location Service

First Overnight | First | Dangerous Goods Service Express Freight | Priority Freight Weekend Shipping Alaska and Hawaii

| Worldwide Logistics | | U.S. Government Shippers | |

| Economy Freight | Airport to Airport

| International Government Guide

Supply Chain Management at Fedex

A supply chain is a network of sub-suppliers, suppliers, internal operations, trade customers, retail customers, and end users. Supply chain management is a loop that starts with the customer and ends with the customer. It requires looking at your business as one continuous process that absorbs such traditionally distinct functions as forecasting, purchasing, manufacturing, distribution and sales, and marketing into a continuous flow of business interaction. Under this the functional stove pipes of corporate activity are replaced by departments structured as a pipeline that stretches between a companys suppliers and its customers. Integrated supply chain management is a process-oriented, integrated approach to procuring, producing and delivering products and services to customers. ISCM has a broad scope that includes sub-suppliers, internal operations, trade customers, retail customers and end users. ISCM covers the management of material, information and funds flow. Supply chain management is the logical progression of developments in logistics management. Physical distribution

management integrated two functions, providing inventory-reduction benefits from the use of faster, more frequent and especially, more reliable transportation. Second phase in SCMs development, the logistics stage saw the addition of the manufacturing, procurement and order management functions. This was aided by electronic data interchange, worldwide communications, and the growing availability of computers to store data and perform analyses. The third and current stage is the integrated supply chain management stage. To the lengthening chain of functions being integrated, suppliers at one end and customers at the other have been added. This has become a seven-function supply chain, vastly more complex than the two-functions physical distribution chain. To handle this complexity, we rely on electronic data, electronic funds transfer, higher bandwidth communications, and computerized decision support systems for planning and for execution. Training is a key component too. The next phase of supply chain management, super supply chain management for want of a better term will incorporate more functions such as product development, marketing and customer service. It will be enabled by even more advanced communications, better and more user-friendly computerized decision support systems and increased training. Factors shaping supply chain management From the many factors potentially involved,it is believed that six business and economic forces will most impact future supply chain management. These include the three external factors: consumer demands, globalisation and information/ communication. Three additional topics that will be critical to future supply chain design:competition,regulation and environmental concerns.Though other factors, for example, organized labour and transportation technology may play a role they will be secondary in defining supply chain managements future. FedEx in India has five flights a week coming to its Mumbai gateway (no flights on weekends).These flights come from the eastern hub and the western hub of the FedEx corporation. In India the FedEx corporations activities are governed by the DGCA rules (which requires a minimum cooling period for 24 hours for unaccompanied goods on flights, quota restrictions on the movement of certain goods within the country, transshipment not allowed because of custom laws etc.) Using its alliance with Blue Dart, the compliance aspect is left to Blue Dart to fulfill. FedEx purchases from suppliers in two primary ways: 1. Centralised purchasing--- a process with contract/business agreement formats executed by supply chain specialists at headquarters for the various divisions within FedEx. Centralised purchasing is most often used for high dollar value goods and services. 2. Decentralised purchasing--- a process at regional and local levels throughout FedEx all over the world. Decentralised purchasing is generally used for readily consumable commodities of small dollar value. If we look at the supply chain of Fed Ex in India we see that their suppliers are * Indian Oil for providing fuel for its aircrafts which lands in Mumbai. * Khambatta Associates for doing all the ground handling work

* Jinnah & Associates for custom clearance. * Stationery ( memos,notepadsetc) are bought from local suppliers * Advertising ,PR and direct marketing functions are outsourced to various agencies. * Blue Dart handles collection,distribution ,transportation and logistics in the country for FedEx * Software supplied by FedEx,USA.developed inhouse. The customers of FedEx in India are * Leather exporters * Garments exporters * Brass exporters * Marine products exporters * Gems and jewellery exporters , and * Other exporters of the top ten export items Transportation and Logistics Management Transportation is the linkage process in logistics and often consumes much of the resources provided to the logistics function. It once dominated the distribution activity but for most companies it is now integrated into an overall activity. There are three factors that need to be considered. Operational factors include customer, environmental, product and company characteristics. The choice of transport mode is influenced by load size, density, value, competitive necessity and cost structures. Channel strategy considerations include the identification of available channels and the interfaces within each channel. Transportation with facilities creates time utility value in the supply chain. The extent of this will be part of the decision making process. Clearly, there are a number of options available: the decision on which one to use will be based upon a number of factors. Transportation also creates place utility value by delivering product to locations that are convenient for customers. Transportation accounts for the largest resource commitment in the logistics activity, therefore its relative cost/benefit profile must be established within the context of the level of customer satisfaction that is being set as an objective. There are a number of interface areas and therefore decisions shared by transportation. These should be explored by first identifying the areas of flexibility and inflexibility of the decisions and most importantly that of the customer service objectives. The decisions influenced by transportation considerations include: * Market coverage * Sourcing decisions * Processing/manufacturing

* Customer service decisions. There are five factors which should be considered in the choice of transportation * Company characteristics and philosophy-- These are important and concern the companys marketing, financial and operations strategies. * Market structures-- are important considerations. There are two factors: competitive structure and the geographical structure or territorial considerations. In fiercely competitive markets delivery may be one of the key factors influencing customers selection of suppliers. * Product characteristics-- to be considered are weight, size and shape, robustness, shelf life, potential danger, value and special characteristics, which may require expensive handling services and equipments. * Customer characteristics-- have an impact on profitability. Often it is those characteristics which may influence delivery costs that are important as to whether or not a customer is profitable to the business. * Environmental issues-- can influence a transport mode decision in a number of ways. In its broadest scope environment can be taken to include government and its influence on transport policy. The concept of trade-off possibilities and potential for overall costs is important within the transport decision. There are three that should be considered The concept of trade-off possibilities and potential for overall costs is important within the transport decision. There are three that should be considered: Horizontal Trade-offs--occur within and between the different transport modes, which could be selected to perform the same task, such as air versus sea, or road versus rail. Vertical trade-offs--Occur where a change takes place in a transport activity and offers a greater benefit in another area of the logistics function or the organization, such as markedly improved productivity due to an infrastructure development. Lateral trade-offs--occur where transport costs can be weighted against lower costs in other areas. Using express freight services may increase the freight cost but reduce the need for distribution centers or high inventory building. FedEx combines people and technology to optimize cost and service. Theirtransportation management service combines sophisticated informationtechnology with human resources to improve the inbound and outboundtransportation processes of their customers.Their service simplifies carrierselection,

improves logistics management, and offers cost savings opportunities.They streamline transportation management by providing a single point ofcontact for all of a customer's shipment and delivery needs. A team of dedicatedcoordinators is assigned to each account. Clients order service via electronicdata interchange, the Internet, phone, or fax. They identify the carrier that willprovide the lowest cost and best service for a customer's shipment. Then, acoordinator alerts the selected carrier and dispatches a vehicle. The result is asimplified, cost-effective process for managing transportation and inventorycarrying costs.

Integrated Logistics

Increase inventory visibility and velocity with integrated logistics.They combine knowledge and technology to integrate transportation management service with:

* order management * fulfillment * kitting and parts sequencing * supply chain consulting and design * returns management Their customers can benefit from improved operating efficiencies, increased flexibility, and improved inventory visibility and velocity

e-Logistics

The components of FedEx e-Logistics (web enablement fulfillment, returnsmanagement) can be implemented individually to address the specific needs of supplychains. They can also be configured in a number of ways to create an integrated solutionthat works hard to speed entry into the digital marketplace, enhance inventory visibilityand velocity, and improve cutomer service and relationship management. From a simplechannel to a complex supply chain. From small e-tailers to manufacturing suppliers. Theflexible, scalable, and configurable FedEx e-Logistics

package can help you compete. and win.

Enablement

he front-end of your e-commerce operation is a critical component of your onlinechannel. Many companies choose an outside vendor for creating their web sites, only tofind they deliver partially. Often, the firm is ultimately focused on the look-and-feel,brand-building aspects of the site, and ignores the potential for optimizing the customersexperience and building loyalty. The Enablement component of FedEx e-Logistics includes: Customer Relationship Tools that can provide customer interactionhistories. This valuable information can easily be transformed intopowerful, personalized sales programs. On-Line Inventory and Order Information access that can tell customers if an item is out-of-stock and suggest an alternative. 24 x 7 Customer Support that can help close sales with customers. Current technologies include pop-up chat windows, e-mail, and Internet voice solutions

CUSTOMER SERVICE IN THE SUPPLY CHAIN Efficient Consumer Response refers to the situation that makes the consumer the hero byproviding better service to customers at lower cost, fewer stockouts and new productsthey want. Consumers will get a better deal overall. All this is done through control ofinformation and product form the pointof manufacturing to the point of sale, with theintent of eliminating waste and reducing cost cross an entire distribution pipeline. WithECR the entire pipeline is driven by scanned data at the point of sale. Replenishmentorders are communicated via EDI to direct store delivery to retail distribution centers towholesaler / distributor and to the manufacturers.

This ensures that the right amount of product is delivered in a timely fashion, eliminatingunnecessary inventory in the pipeline, eliminating stock outs and also eliminating theneed for each pipeline participant to conduct its own forecast. In essence, ECR makes itpossible for participants in a distribution pipeline to substitute information for inventory.The benefits to them are increased product velocity and the competitive benefits ofsignificantly lower costs. In Delhi, FedEx has a 24 hour call center (6285911) wherein the customers can call and make an order for pickup and delivery. FedEx assures a maximum 1 hourresponse timefor pick up. The customer is expected to package the goods to besent himself. Also after the pick up has taken place, a one-hour time for doing the necessary paperwork is required.

Following this a maximum of 6 hours processing time is neededat the airport for bagging, tagging, foreign exchange remittance, security check, clearance, etc. Thus keeping in mind the time for departure of flight and all this time required, FedEx works backward to ensure that the product is picked and delivered on time. For achieving this FedEx has a call cutoff time after which they stop taking calls for that particular day They have a office cut off time after which paper work by the office is not done. And they have at ramp cutoff time after which a package is not taken to the airport(this is the time required to balance the aircraft and to secure the goods to it.) However the adjustments to these rules can be made depending on the proximity of the customers to the office or his volunteering to drop off the package at the airport, etc., FedEx has segmented its customers by By analysing large scale databases available with Blue Dart and the various export promotion councils.

By segmenting Businesses based on their industry of operation and design of their supply Chains. On the basis of the customer service needs in the Asia Pacific region and the inputs required for it. FedEx has certain service quality standards and levels laid\d down and these are strictly adhered to. These are the net service levels(NSL) and the service qualit

S.W.O.T. Analysis Company Strengths and Resource Capabilities Globalism: Federal Express operates on a global scale. They operate in 211 countries. They provide services that appeal to most of the world. They have such a large market in which to operate, and thus realize tremendous revenues. They can also achieve global economies of scale. Innovation: Federal Express took airplanes and trucks and used them differently than any other company before them. This is innovation. They have first-mover advantage in name recognition because of this innovation. This has helped them to remain the industry leader since 1973. Technology and Communication: Federal Express uses and continues to search for new technology. They allow spending of $1billion a year, 10% of total revenues, for information technology. That commitment keeps customers from switching to other providers. Federal Express also has excellent communication with their customers. They use tracking devices on all shipments, and customers can find out where their shipment is through many different avenues including a user-friendly Web site. Federal Express customers are assured that FedEx will always be on top of technology. Strategic Vision: Federal Express will always have competent top managers in charge of strategic direction. Frederick Smith built an industry leader, and kept it in that position since 1973. First-Mover Advantage: Federal Express has had first-mover advantage in several areas. 1. Being a global express transportation company. 2. Advanced technology and communication throughout the companys operations. 3. Incorporating smaller companies with similar operations under its belt to synergize and control more of the market. Industry Leader: Federal Express has been the industry leader since 1973.

Strong Brand Image: In 1990, Federal Express became the first company awarded the Malcolm Baldrige National Quality Award in the service category. In 1994, Federal Express became the first global express transportation company to obtain simultaneous system-wide ISO 9001 certification in international quality standards. Federal Express has also developed their own quality system that matches their customers standards. Company Weaknesses and Resource Deficiencies Rising Prices: Federal Express prices are above their competitors. This can be a weakness if their customers do not perceive a difference between Federal Express and its competitors services. Labor Disputes with Pilots: Federal Express pilots have formed the Fedex Pilots Association. This organization demanded changes in the pilots salaries, retirement benefits, and the fact that Federal Express outsources some foreign flights instead of giving their own pilots the job. The pilots have a Web site where news is posted and feelings are discussed. During the busy Christmas season in 1998, the pilots threatened to strike. Federal Express and the Fedex Pilots Association have developed a tentative agreement, which is published on the pilots Web site. However, the pilots do not believe this agreement fully meets their expectations. This dispute is definitely an internal weakness for Federal Express, considering they have 3,500 pilots employed with them. Their operations would suffer if there were strikes. When UPS employees went on strike in 1997, Federal Express took the extra 800,000 shipments a day. If Federal Express employees went on strike, their competitors could gain an advantage. Running Subsidiaries Separately: FDX has deliberately chosen to keep their companies separate. In FDXs 2008 Annual Report, CEO Frederick Smith states, "Simply layering the unique resource and operating requirements of a time-definite, global, express-delivery network onto a day-definite, ground smallpackage network would surely result in diminished service quality and increased costs. Under the FDX umbrella, we will leverage our shared strengths while operating each delivery network independently, with each focused on its respective markets." Frederick Smith is confident this will be a strength, instead of a weakness. Time will tell. Company Opportunities: Expansion Globally: Federal Express can continue to expand globally, including the other companies under FDX. Expansion Internally: Federal Express can continue to acquire more companies, and expand into new technologies or areas in their industry. Run Subsidiaries Together: If FDX doesnt profit from running the subsidiaries separately, they can change to integrating their operations to achieve better synergies and economies of scale. Contracts with Large Corporations: To stay the industry leader, Federal Express should form contracts with companies who will add cost-saving or value-adding benefits to their services.

Joint-Ventures: Federal Express can form joint ventures, such as already with Netscape and American Express, to enjoy the growth of integrating their customer bases. Expansion of e-commerce: Federal Express already has a major presence of shipping online. They should keep finding Internet companies to contract delivery of their products. Since the growth of e-commerce is rapid now, Federal Express could enjoy both profits and brand name recognition from this kind of expansion. Company Threats Y2K Problem: If Federal Express communication and tracking systems arent actually Year 2000 ready, they will experience lost shipments, lost customers, and lost profits. This is a threat for every business, but a global company will be affected on a larger scale. Community Responsibility in the U.S.: Federal Express might be subject to community disapproval in expansion within the United States. Right now, Federal Express has plans to build a second super-hub in Greensboro, NC. The airport is supportive, but the citizens of the community are not. Federal Express has to decide whether the community support or building the center is more important. Relations with Foreign Countries Through Federal Express expansions globally, they are subject to laws and regulations of all foreign countries. There could be major problems in this area, stunting growth and raising costs. Already, Great Britain will not let Federal Express fly their own planes for shipments. Federal Express must either load their cargo on to British planes, or use ground transportation. This is very inefficient for Federal Express; however, it keeps competition out for British Air Transportation companies. Everywhere Federal Express goes, they are at risk for regulations that hinder their operations or efficiency. Economic and Political Conditions Federal Express is subject to the entire worlds economic and political condition in the areas of fuel prices and supply, customer purchase of their services, and relations with foreign countries. As a global company, they are subject to much more risk than domestic companies. Current Problems and Issues Federal Express has several current issues and problems. Decisions about these issues will affect Federal Express profits and brand name in the future. 1. Federal Express Pilots disputes In the disputes with the company over their salary and compensation, retirement benefits, and Federal Express outsourcing some foreign flights. Federal Express spends only 13.17 percent of total operating expenses on their labor expense. The industry average is 14.81 percent. However, Federal Express main competitors spend 20 and 24 percent of total operating expenses on labor. This is why the pilots are voicing their disagreements, and demanding change.

2. Fuel Price Fluctuation Federal Express raised their prices and developed contracts with oil suppliers to cover fluctuating fuel costs and volatility of supply.

3. Alliance with Netscape FDX created an alliance with Netscape in order to simplify the world of electronic commerce. FDX will offer delivery services on Netscapes Internet portal site. This will allow both companies to achieve mutual business targets that could not be achieved otherwise.

4. Alliance with American Express Federal Express offers a 10 to 20 percent discount on many delivery services to customers using an American Express Small Business Corporate Card. Federal Express offers many different services spanning the globe; this is why Federal Express has many strengths, and opportunities. However, Federal Express must also be concerned with their weaknesses and current problems. Industry Analysis 1. Dominant Economic Characteristics Federal Express is in the Air Freight or Air Cargo Transportation Industry. This industry had sales of $34.2 billion in 1998. This industry is in the early maturity life cycle because entry is difficult, yet current competitors are still growing. Companies can realize economies of scale in this industry in marketing and purchasing. Services in this industry are essentially identical, with the exception being the value-added services.

2. General Economic Conditions The current global economic crisis can affect this industry by stunting foreign expansion and reduced utilization of express shipping services. The current crisis in Kosovo may affect business for these companies if any countries they do business in feel the United States is wrong and want to boycott American-originating products and services.

PESTLE ANALYSIS

POLITICAL This aspect of the external environment affects the company in the same way that the legal aspect affects it. Laws and regulations effected within the transportation and logistics industry are dependent on the political environment which formulates such laws and regulations. The contemporary political environment is shown supportive of such technological advances in the industry under discussion to the extent that it has given impetus to the growth that the industry is experiencing now. Governmental policies and laws affect where and how companies may choose to compete, and deregulation and local government changes, such as those in the global transportation industry, affect not only the general competitive environment, but also the strategic decisions made by firms competing globally.

ECONOMIC The growth of the express transportation and logistics industry was brought about mainly by the globalisation of businesses. As businesses expanded beyond national boundaries and extended their global reach to take advantage of new markets and cheaper resources, so the movements of goods created new demands for the transportation and logistics industry. With this, the competitiveness of transportation companies depended upon their global network of distribution centres and their ability to deliver wherever their customers conducted business. Rising inflation and global competition gave rise to greater pressures on businesses to minimise the costs of operation, including implementation of just-in-time inventory management systems, etc., and also created demands for speed and accuracy in all aspects of business.

SOCIAL The ever-changing market demand for value-added services affects FedExs corporate level strategies tremendously in that most of the business tactics that the firm employs centre on bringing about valueadded services to their customers. After all, FedEx relies largely on their customers loyalty to sustain their leadership in the industry that they are in. As part of their corporate social responsibilities, FedEx is practising corporate philanthropy and employee volunteerism and is constantly developing relationships with charitable institutions that share the same values as FedEx.

TECHNOLOGICAL The advances in IT and the application of new technology to generate process efficiencies also served as impetus for the growth of the express transportation and logistics industry. The ability to share information between operations/departments within a company and between organisations to

generate operational efficiencies, reduce cost and improve customer service was a major breakthrough for the express transportation industry. However, of even greater significance was the way n which new technology redefined logistics. At a time when competition within the transportation industry was tough and transportation firms were seeking to achieve competitive advantages through value-added services, many of these companies expanded into logistics management services. Interconnectivity through the Internet and Intranets and the integration of systems enabled businesses to redefine themselves and reengineer their selling and supply-chains. Information came to replace inventory. With the advent of It, express transportation became an aggregation of two main function: the physical delivery of parcels, and the management and utilisation of the flow of information pertaining to the physical delivery.

LEGAL Throughout the more than three decades of existence of FedEx, their growth was attributable to a number of external factors that the firm was quick to capitalise on, which included: (1) government deregulation of the airline industry, which permitted the landing of larger freight planes, thus reducing operating costs for FedEx; (2) deregulation of the trucking industry, which allowed FedEx to establish a regional trucking system to lower costs further on short-haul trips. Also, trade deregulation in Asia Pacific opened new markets for FedEx and expanding globally became a FedEx priority.

ENVIRONMENTAL The FedEx Corporation recognises that one of its most important corporate priorities is effective environmental management. In efforts to fulfil their responsibilities to the environment, the company is engaged in several projects which aim at protecting the environment at large. Emissions and fuel use has been a constant source of concern for the care of the environment. In line with this, the firm partnered with the Environmental Defence in 2000 to create a delivery truck that would dramatically decrease emissions and fuel use. Also, with respect to packaging and recycling, a continued evaluation of the environmental impact of their packages is on-going and the firm additionally makes sure that their packages are made from recycled materials that are equally recyclable.

Porters 5-Forces Model 1. Rivalry Among Competing Sellers This is a strong force in this industry because the competitors use price cuts to compete, there is a low cost and ease to switching brands, and the companies in this industry diversify and acquire other companies for strategic growth and synergy. This is a weak force in this industry. Each company currently in the industry has strong brand images, leaving a harder job for new companies. The capital expenditures to start an express transportation company are large, and the companies currently are

achieving economies of scale by going global. Any smaller company will not be able to achieve these right away, not allowing them to compete on prices. Another factor threatening potential entrants is trade tariffs and international regulations. Most companies currently in the industry have already established relations with foreign countries. New companies will have to prove themselves to foreign companies, suppliers, and customers. 2. Competitive Pressures of Substitute Products This is a weak to moderate force in this industry. Businesses and individuals that wish to ship cargo and packages can do it with other modes of transportation such as trucks, trains and boats. However, the customers that use air freight transportation usually desire convenience, speed, and low cost. Traditional transportation modes do not offer all three of these. Businesses and Individuals who want to ship documents can use e-mail, the Internet, and Facsimiles. However, these can take some time to scan and load, and then it is uncertain that your document will get to its destination. 3. Power of Suppliers This is a strong force if the suppliers serve industries other than Air Freight. If a supplier only has accounts, or the majority of their accounts with these companies, they will not be able to control prices and supplies. Suppliers that are involved in this industry are: vehicle manufacturers, airplane manufacturers, fuel suppliers, labor, airports, and shipping materials manufacturers. 4. Power of Buyers This is a moderate force in this industry because competition keeps prices similar among the companies. The only difference is companies, such as Federal Express who have value-added services that allow a higher price. Also, the buyers of the services in this industry are reactionary. They do not know the technology before it happens. They become dependent on the technology, service and speed offered by the companies in this industry and will pay for it. 5. Industry Prospects and Overall Attractiveness A trend among Air Freight shippers is to use the Internet for communication with customers and even obtaining shipping contracts with companies selling on the Internet. This alliance with the fastestgrowing industry will bring exponential growth to the Air Freight industry, above and beyond what they would normally have realized without this. This industry should remain attractive, with concentration on competition for market share, service differentiation, and brand image. Current Advertising has been aimed at being better than the competitor for different reasons. Performance Analysis FDX has an impressive performance record for example in 2008 they had revenues of $15.9 billion. We can also look at their Net Income for 2008, as well as for the last five years. e-Business Strategies at Federal Express

Over the years, Federal Express Corporation (FedEx) has transformed itself from an express delivery company to a worldwide transportation, global logistic, and supply chain solutions company that relies heavily on e-Business. The Optically Recorded Information Online Network (ORION) project at Federal express is an early example of how FedEx utilized new information technologies while reengineering the business processes. As noted later, this trend has continued. ORION was conceived in the mid 1990s in response to the inability of alternative methods (paper, microfilm, microfiche) to cope with the massive documentation needed for FedExs more than 90,000 employees at that time. Instead of just an archiving system, ORION virtually eliminated all manual data and allowed secure and instant access to documents worldwide. This was accomplished through systematically combining technological innovation with organizational changes. In particular, the project was conducted as three stages of reengineering which systematically replaced the character -based system with GUI devices. In each stage, the customers, input devices, output devices, indexing schemes, and interconnecting networks were clearly specified. In addition, the workflow was reengineered in each stage and the organizational/staff issues were carefully taken into account. The key factors for the success of this project were: * Strong sponsorship from senior management * Information systems group served as enabler and facilitator instead of leader * Focus on integration with existing systems * Effective staging of technical and organizational changes * Constant review and analysis of evolving technologies * High initial investment on non-technical issues such as end-user training The company has continued the same approach to adopt e-business in the late 1990s. In 1998, the company built a powerful technical architecture that had the ability to deliver information over the web to all employees, customers and sites in a global economy. It has also integrated its operation with suppliers such as Amazon.com for fast delivery. FedEx, for example, integrated its supply chain with Amazon.com to deliver 250,000 copies of the very popular book "Harry Potter and the Goblet of Fire" in one day! To change its historical image from an express delivery company to an e-business company, it acquired other companies such as Caliber Systems and RPS.. The acquisition of Caliber provides customized, integrated logistics and warehousing solutions worldwide. RPS is North Americas secondlargest provider of business-to-business ground small-package delivery services. FedEx is growing RPS into a business-to-customer specialty service for the residential delivery business. In 2000, FedEx announced a major re-organization to allow five subsidiary companies to function independently but to compete collectively. In addition to streamlining many functions, the company announced that it would pool its sales, marketing and customer service functions. The interesting aspect of FedEx is that it has adopted new technologies to deliver business value but also has paid a great deal of attention to organizational and re-engineering/alignment issues.

Recommendations Based on the company history, company analysis, industry analysis and performance analysis, we have the following recommendations for Federal Express. 1. Ensure that the employees, especially pilots, are well compensated. Since Federal Express is a service company, employees are critical to its success. 2. Place pilots salaries at or above the industry average. They need to maintain a strong presence on the Internet, in case of a shakedown, and find ways to make their e-commerce user-friendly and profitable. 3. They need to keep prices within 10 % of their competitors prices, or make sure that their customers view their service as worth the price.

Bibliography www.fedex.com

Julie Chen, Christopher Rola, TsungYu (Tim) Yeh, and Dan Zheng, "Federal Express Case Study", Fordham Student Report, October 2002

Pauline Ng, FedEx Corp: Structural Transformation Through e-Business (HKU-098), Centre for Asian Business Cases, School of Business, The University of Honk Kong. 1 January 2000.

Candler, J., et al, "The ORION Project: Staged Business Process Reengineering at FedEx", Communications of ACM, Feb. 1996, pp. 99-107Adidas

|Adidas |[pic] |Type |Founded |Founder(s) |Headquarters |Public (AG, FWB: ADS) |

| | | |

|1924 (registered in 1949)[1] |Adolf Dassler |Herzogenaurach, Germany

|Key people | | |Industry |Products | | |Revenue

|Herbert Hainer (CEO), Erich Stamminger (CEO, Adidas | |Brand), Igor Landau (Chairman of supervisory board) | |(2009-) |Designing and Manufacturing |Footwear, Sportswear |, Sports equipment |Toiletries | | | | | | | | | |

|10.799 billion ($15.6 billion) (2008)*2+ | 1.070 billion ($1.5 billion) (2008)*2+

|Operating income |Profit |Employees |Website

| 642 million ($933 million) (2008)*2+ |38,980 (2008)[2] |www.adidas-group.com

Adidas AG (pronounced /dids/ in US English, FWB: ADS) is a German-based sports apparel manufacturer and part of the Adidas Group, which consists of Reebok sportswear company, TaylorMade-adidas golf company, and Rockport. Besides sports footwear, the company also produces other products such as bags, shirts, watches, eyewear and other sports and clothing related goods. The company is the largest sportswear manufacturer in Europe and the second biggest sportswear manufacturer in the world, after its U.S. rival Nike.[3] The company's clothing and shoe designs typically feature three parallel bars, and the same motif is incorporated into Adidas's current official logo. The "Three Stripes" were bought from the Finnish sport company Karhu Sports in the 1950s.*4+*5+ The company revenue for 2008 was listed at 10.799 billion and the 2007 figure was listed at 10.299 billion, or about US$15.6 billion. ||

[pic][edit] History [edit] Gebrder Dassler Schuhfabrik Adolf ("Adi") Dassler started to produce his own sports shoes in his mother's wash kitchen in Herzogenaurach, Bavaria, after his return from World War I. In 1924, his brother Rudolf (Rudi) Dassler

joined the business which became Gebrder Dassler Schuhfabrik (Dassler Brothers Shoe Factory) and prospered. The pair started their venture in their mother's laundry, but at the time, electricity supplies in the town were unreliable, and the brothers sometimes had to use pedal power from a stationary bicycle to run their equipment.[6] By the 1936 Summer Olympics, Adi Dassler drove from Bavaria on one of the world's first motorways to the Olympic village with a suitcase full of spikes and persuaded United States sprinter Jesse Owens to use them, the first sponsorship for an African-American. After Owens won four gold medals, his success cemented the good reputation of Dassler shoes among the world's most famous sportsmen. Letters from around the world landed on the brothers' desks, and the trainers of other national teams were all interested in their shoes. Business boomed and the Dasslers were selling 200,000 pairs of shoes each year before World War II.[7] Late in World War II, the shoe factory shifted to production of the Panzerschreck anti-tank weapon.[8] [edit] Company split Both brothers joined the Nazi Party, but Rudolf was slightly closer to the party. During the war, a growing rift between the pair reached a breaking point after an Allied bomb attack in 1943 when Adi and his wife climbed into a bomb shelter that Rudolf and his family were already in: "The dirty bastards are back again," Adi said, apparently referring to the Allied war planes, but Rudolf was convinced his brother meant him and his family.[9] After Rudolf was later picked up by American soldiers and accused of being a member of the Waffen SS, he was convinced that his brother had turned him in.[6] The brothers split up in 1947,[10] with Rudi forming a new firm that he called Ruda - from Rudolf Dassler, later rebranded Puma, and Adi forming a company formally registered as adidas AG (with lower case lettering) on 18 August 1949. The acronym All Day I Dream About Soccer, although sometimes considered the origin of the adidas name, was applied retroactively. The name is actually a portmanteau word formed from "Adi" (a nickname for Adolf) and "Das" (from "Dassler").[1] [edit] The Tapie affair After a period of trouble following the death of Adolf Dassler's son Horst Dassler in 1987, the company was bought in 1989 by French industrialist Bernard Tapie, for 1.6 billion French francs (now 243.918 million), which Tapie borrowed. Tapie was at the time a famous specialist of rescuing bankrupt companies, an expertise on which he built his fortune. Tapie decided to move production offshore to Asia. He also hired Madonna for promotion. He sent, from Christchurch, New Zealand, a shoe sales representative, to Germany and met Adolf Dassler's descendants (Amelia Randall Dassler and Bella Beck Dassler) and was sent back with a few items to promote the company there.

[pic] [pic] A pair of Adidas "Samba" football trainers. In 1992, Tapie was unable to pay the interest from his loan. He mandated the Crdit Lyonnais bank to sell Adidas, and the bank subsequently converted the outstanding debt owed into equity of the enterprise, which was unusual as per the prevalent French banking practice. Apparently, the stateowned bank had tried to get Tapie out of dire financial straits as a personal favour to Tapie, reportedly because Tapie was Minister of Urban Affairs (ministre de la Ville) in the French government at the time. In February 1993, Crdit Lyonnais sold Adidas to Robert Louis-Dreyfus, a friend of Bernard Tapie for a much higher amount of money than what Tapie owed, 4.485 billion (683.514 million) francs rather than 2.85 billion (434.479 million). Tapie later sued the bank, because he felt "spoiled" by the indirect sale. Robert Louis-Dreyfus became the new CEO of the company. He was also the president of Olympique de Marseille, a team Tapie had owned until 1993. Tapie filed for personal bankruptcy in 1994. He was the object of several lawsuits, notably related to match fixing at the soccer club. During 1997, he served 6 months of an 18 month prison sentence in La Sant prison in Paris. In 2005, French courts awarded Tapie a 135 million compensation (about 886 million francs). [edit] Post-Tapie era In 1994, combined with FIFA Youth Group, SOS Children's Villages became the main beneficiary. In 1997, Adidas AG acquired the Salomon Group who specialized in ski wear, and its official corporate name was changed to Adidas-Salomon AG because with this acquisition Adidas also acquired the Taylormade Golf company and Maxfli which allowed them to compete with Nike Golf. In 1998, Adidas sued the NCAA over their rules limiting the size and number of commercial logos on team uniforms and apparel. Adidas withdrew the suit, and the two groups established guidelines as to what three-stripe designs would be considered uses of the Adidas trademark. In 2003, Adidas filed a lawsuit in a British court challenging Fitness World Trading's use of a two-stripe motif similar to Adidas's three stripes. The court ruled that despite the simplicity of the mark, Fitness World 's use was infringing because the public could establish a link between that use and Adidas's mark.[11] In September 2004, top English fashion designer Stella McCartney launched a joint-venture line with Adidas, establishing a long-term partnership with the corporation. This line is a sports performance collection for women called "Adidas by Stella McCartney",[12] and it has been critically acclaimed.[13]

Also in 2005, on 3 May, Adidas told the public that they sold their partner company Salomon Group for 485m to Amer Sports of Finland. In August 2005, Adidas declared its intention to buy British rival Reebok for $3.8 billion (US). This takeover was completed with partnership in January 2006[1] and meant that the company will have business sales closer to those of Nike in North America. The acquisition of Reebok will also allow Adidas to compete with Nike worldwide as the number two athletic shoemaker in the world.[14] Adidas has corporate headquarters in Germany, and many other business locations around the world such as Hong Kong, Toronto, Taiwan, England, Japan, Australia and Spain. Mainly sold in the U.S., Adidas makes lots of assets from these countries and is expanding to more oversea countries. In 2005, Adidas introduced the Adidas 1, the first ever production shoe to utilize a microprocessor. Dubbed by the company "The World's First Intelligent Shoe", it features a microprocessor capable of performing 5 million calculations per second that automatically adjusts the shoe's level of cushioning to suit its environment. The shoe requires a small, user-replaceable battery that lasts for approximately 100 hours of running. On 25 November 2005, Adidas released a new version of the Adidas 1 with an increased range of cushioning, allowing the shoe to become softer or firmer, and a new motor with 153 percent more torque.[citation needed] On 11 April 2006, Adidas announced an 11-year deal to become the official NBA apparel provider. They will make NBA, NBDL, and WNBA jerseys and products as well as team-coloured versions of the "Superstar" basketball shoe. This deal (worth over $400 million) takes the place of the previous 10-year Reebok deal that was put in place in 2001. [edit] Products [edit] Running Adidas currently manufactures several running shoes, including the adiStar Control 5, the adiStar Ride (the replacement for the adiStar Cushion 6), the Supernova Sequence (the replacement for the Supernova Control 10), and the Supernova Cushion 7 (which will soon be replaced by the Supernova Glide), among others. In addition, their performance apparel is widely used by runners. Adidas also uses kangaroo leather to make their more expensive shoes.[15][16] [edit] Association football One of the main focuses of Adidas is football kit and associated equipment. Adidas also provides apparel and equipment for all teams in Major League Soccer. Adidas remain a major company in the supply of team kits for international football teams. Current examples include Russia, France, Germany, Greece, Romania, Argentina, Spain, Mexico, South Africa, Japan and Nigeria. Adidas also makes referee kits that are used in international competition and by many countries and leagues in the world. In the United States, referees wear the Adidas kits in MLS matches even though the primary referee supplier is Official Sports.

The company has been an innovator in the area of footwear for the sport with notable examples including development of the Copa Mondial moulded boot used for matches on firm dry pitches for almost forty years. The studded equivalent was named World Cup follow in celebration of the 1978 tournament won by Argentina, one of the nations it supplied at the time. A few of the famous club football teams of which are currently sponsored by Adidas are Real Madrid, Chelsea, River Plate, Liverpool, Marseille, Universidad de Chile, Bayern Munich, Schalke 04, Benfica, Milan, Wolfsburg,Galatasaray,Panathinaikos, and Palmeiras, among others. Adidas became renowned for advancing the Predator boot design developed by ex-Liverpool and Australian international player Craig Johnston. This design featured a ribbed rubber structure for the upper leather of the shoe, used to accent the movement of the ball when struck; highly skilled players claimed they were able to curve the flight of the ball more easily when wearing this new contoured design.[citation needed]The Predator also features the Craig Johnston-invented Traxion sole. FIFA, the world governing body of football, commissioned specially designed footballs for use in its own World Cup tournaments to favour more attacking play. The balls supplied for the 2006 World Cup were particular noteworthy for their ability to travel further than previous types when struck, leading to longer range goal strikes that were intended to increase the number of goals scored. Goalkeepers were believed to be less comfortable with the design, claiming it would move significantly and unpredictably in flight. [edit] Tennis Adidas has sponsored tennis players and recently introduced a new line of tennis racquets. While the Feather is made for the "regular player", and the Response for the "club player", Adidas targets the "tournament player" with the 12.2 oz Barricade tour model.[17] Adidas sponsors the following professional players: Jo-Wilfried Tsonga, Dinara Safina, Ana Ivanovid, Daniela Hantuchov, Andy Murray, Fernando Verdasco, Gilles Simon, Marcos Baghdatis, Fernando Gonzlez, Marat Safin, and upcoming players like Melanie Oudin, Sorana Cirstea and Grigor Dimitrov. Adidas tennis apparel contains the ClimaCool technology found in other athletic jerseys and shoes.[18] In Cincinnati, at the ATP Tennis Tournament in Mason, they have also sponsored the ball-boy and ballgirl uniforms. [edit] Golf In 1997, Adidas purchased TaylorMade. The image and focus of TaylorMade was redirected shortly after the acquisition to take over the driver market. The company succeeded in achieving this goal in late 2004 when it officially became the No. 1 driver in golf. On 14 October 2008, Adidas, through its subsidiary TaylorMade, acquired Ashworth for $72 million, assuming $46.3 million in debt.[19] [edit] Cricket

In the 1990s, Adidas signed the world No. 1 batsman Sachin Tendulkar and made shoes for him.[1] He is still wearing Adidas shoes when he plays matches. Adidas even made action figures after Sachin Tendulkar. In 2008, Adidas made their move into English cricket market by sponsoring English batting star Kevin Pietersen after the cancellation of his lifetime deal with Woodworm, when they ran into financial difficulties.[20] The following year they signed up fellow England player Ian Bell and Indian Player Ravindra Jadeja. Having made cricket footware for many years, the company finally entered the field of bat manufacture in 2008 and their products are available in the Incurza, Pellara and Libro ranges Adidas also manufactures the uniforms worn by both the England cricket team and the Australian cricket team. In 2008 and 2009 in both the seasons of the Indian Premier League (IPL), it took up the sponsorship of the Mumbai Indians and the Delhi Daredevils. In 2009, Adidas signed Sachin Tendulkar and started sponsoring his bat. It created a new bat 'Adidas ST' for him and 'Adidas KP' for Kevin Pietersen, the same year. Now both of them use their personalized bats in cricket. [edit] Basketball Adidas has been a longtime basketball shoe manufacturer and is one of the leading basketball brands in the world. They are most famous for their iconic Superstar and Pro Model shoes, affectionately known as "shelltoes" for their stylized hard rubber toe box. These were made very popular in the 1980s hip hop streetwear scene alongside Adidas' stripe-sided polyester suits. Adidas is also the current outfitter of all 30 franchises in the National Basketball Association (replacing the Reebok brand after the merger) and sponsors numerous players past and present like Kareem Abdul-Jabbar and Tracy McGrady, as well as Dwight Howard, Chauncey Billups, Derrick Rose, Kevin Garnett, Michael Beasley, Josh Smith, Tim Duncan, and Candace Parker. [edit] Lacrosse In 2007, Adidas announced the future production of lacrosse equipment, and will sponsor the Adidas National Lacrosse Classic in July 2008 for the top 600 high school underclassmen lacrosse players in the United States.[21] [edit] Rugby Adidas make rugby balls and other rugby gear. They are the current kit and ball supplier to the New Zealand All Blacks, Irish Munster Rugby, and the Argentinian Pumas, among others. [edit] Gymnastics

Since 2000, adidas has provided men's and women's gymnastics wear for Team USA, through USA Gymnastics. In 2006, adidas gymnastics leatards for women and adidas mens comp shirts, gymnastics pants and gymnastics shorts have been available in the USA, with seasonal leotards offered for Spring, Summer, Fall and Holidays. Starting in 2009, adidas gymnastics wear has been available worldwide through GK Elite Sportswear.[22] [edit] Skateboarding Adidas SB (Skateboarding) are shoes made specifically for skateboarding. Many of the shoes Adidas previously made were redesigned for skateboarding. [edit] Accessories Adidas also designs and makes watches, eyewear, bags, baseball caps, and socks. [pic] [pic] Adidas Fresh Impact - Limited Edition As well, Adidas has a branded range of male and female deodorants, perfumes, aftershave and lotions. [edit] Marketing Adidas, like other sports brands is believed to engender high consumer brand loyalty. Brand loyalty towards Adidas, Nike and several other sportswear brands was examined in a recent study.[23] The study found consumers did not exhibit unduly high loyalty towards such brands. During the mid to late 1990s, Adidas divided the brand into three main groups with each a separate focus: Adidas Performance was designed to maintain their devotion to the athlete; Adidas Originals was designed to focus on fashion and life-style; and Style Essentials, with the main group within this one being Y-3. "Impossible is Nothing" is the current mainstream marketing slogan for Adidas. This campaign was developed by 180/TBWA based in Amsterdam but also with significant work being done by TBWA/Chiat/Day in San Francisco - particularly for its basketball campaign "Believe In Five".TBWA\Chiat\Day commissioned Zane Peach[24] to produce images for 2007 international ad campaign. [edit] Sponsorship Main article: List of Adidas sponsorships

Adidas are the main sponsor and kit supplier of the highly successful New Zealand national rugby team, the All Blacks. Adidas also are the kit supplier to the Argentina Pumas, to the French Stade Franais, and the Irish Munster Rugby team and the United States Eagles. Adidas are the main sponsors and kit sponsors of the successful Australian Cricket Team and the England Cricket Team. They are also the main sponsors of the Indian cricketers Sachin Tendulkar and Virender Sehwag and English cricketers Kevin Pietersen and Ian Bell. Adidas are the main sponsors of Australian Domestic Cricket Competitions - Pura Cup, KFC Twenty20 Big Bash, Ford Ranger One Day Cup. They are sponsors of the Indian Premier League teams Delhi Daredevils and Mumbai Indians. Adidas also sponsors and produces apparel for the Gold Coast Titans rugby league clubs in the Australian National Rugby League (NRL) competition. Adidas is the longstanding kit provider to the Germany national football team, a sponsorship that began in 1954 and is contracted to continue until at least 2018. Sponsoring also the Mexican, French and Spanish National Football Teams and from 2010 will sponsor the Scotland national football team.[25] Adidas are very active at sponsoring top football clubs such as Real Madrid, Liverpool, AC Milan, Palmeiras, Bayern Munich, Chelsea, Marseille, AFC Ajax, Schalke 04, Galatasaray, Benfica, Newcastle, River Plate, Beikta, Fenerbahe, UANL Tigres, Panathinaikos, Litex Lovech, Slavia Sofia, AIK, Djurgrdens IF, Brndby IF, IFK Gteborg, Al-Ahly, Al-Hilal, Ahli Jeddah, Universidad de Chile, and the Colombian football teams Los Millonarios, Deportivo Cali, and Atltico Nacional. Adidas and Major League Soccer (MLS) announced a 10-year sponsorship agreement in November 2004 to make Adidas the official athletic sponsor and licensed product supplier for the league, and to work together to create a developmental league for MLS.[26] Adidas also sponsors events such as the London Marathon. For the 2008 Summer Olympics in Beijing, China, Adidas spent 70 million sponsoring the event, amid criticisms.[27] Adidas has also been marketing in NASCAR, sponsoring big name drivers such as Dale Earnhardt, Jr. and Tony Stewart. [edit] Corporate information [edit] Current executive board CEO Adidas-group: Herbert Hainer Finance Adidas-group: Robin J. Stalker CEO Adidas brand: Erich Stamminger Global Operations Adidas-group: Glenn S. Bennett

[edit] Former management CEO (1993-2002): Robert Louis-Dreyfus. [edit] Financial information

|Financial data in millions of euros[28] |Year

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[pic][edit] Idea More common and accepted definitions of Supply Chain Management are: Supply Chain Management is the systemic, strategic coordination of the traditional business functions and the tactics across these business functions within a particular company and across businesses within the supply chain, for the purposes of improving the long-term performance of the individual companies and the supply chain as a whole (Mentzer et al, 2001).[1] Global Supply Chain Forum - Supply Chain Management is the integration of key business processes across the supply chain for the purpose of adding value for customers and stakeholders (Lambert, 2008)[2]. According to the Council of Supply Chain Management Professionals (CSCMP), Supply chain management encompasses the planning and management of all activities involved in sourcing, procurement, conversion, and logistics management. It also includes the crucial components of coordination and collaboration with channel partners, which can be suppliers, intermediaries, thirdparty service providers, and customers. In essence, supply chain management integrates supply and demand management within and across companies. More recently, the loosely coupled, self-organizing network of businesses that cooperate to provide product and service offerings has been called the Extended Enterprise. A supply chain, as opposed to supply chain management, is a set of organizations directly linked by one or more of the upstream and downstream flows of products, services, finances, and information from a source to a customer. Managing a supply chain is 'supply chain management' (Mentzer et al., 2001).[3] Supply chain management software includes tools or modules used to execute supply chain transactions, manage supplier relationships and control associated business processes. Supply chain event management (abbreviated as SCEM) is a consideration of all possible events and factors that can disrupt a supply chain. With SCEM possible scenarios can be created and solutions devised.

[edit] Supply chain management problems Supply chain management must address the following problems: Distribution Network Configuration: number, location and network missions of suppliers, production facilities, distribution centers, warehouses, cross-docks and customers. Distribution Strategy: questions of operating control (centralized, decentralized or shared); delivery scheme, e.g., direct shipment, pool point shipping, cross docking, DSD (direct store delivery), closed loop shipping; mode of transportation, e.g., motor carrier, including truckload, LTL, parcel; railroad; intermodal transport, including TOFC (trailer on flatcar) and COFC (container on flatcar); ocean freight; airfreight; replenishment strategy (e.g., pull, push or hybrid); and transportation control (e.g., owneroperated, private carrier, common carrier, contract carrier, or 3PL). Trade-Offs in Logistical Activities: The above activities must be well coordinated in order to achieve the lowest total logistics cost. Trade-offs may increase the total cost if only one of the activities is optimized. For example, full truckload (FTL) rates are more economical on a cost per pallet basis than less than truckload (LTL) shipments. If, however, a full truckload of a product is ordered to reduce transportation costs, there will be an increase in inventory holding costs which may increase total logistics costs. It is therefore imperative to take a systems approach when planning logistical activities. These trade-offs are key to developing the most efficient and effective Logistics and SCM strategy. Information: Integration of processes through the supply chain to share valuable information, including demand signals, forecasts, inventory, transportation, potential collaboration, etc. Inventory Management: Quantity and location of inventory, including raw materials, work-inprogress (WIP) and finished goods. Cash-Flow: Arranging the payment terms and methodologies for exchanging funds across entities within the supply chain. Supply chain execution means managing and coordinating the movement of materials, information and funds across the supply chain. The flow is bi-directional. [edit] Activities/functions Supply chain management is a cross-function approach including managing the movement of raw materials into an organization, certain aspects of the internal processing of materials into finished goods, and the movement of finished goods out of the organization and toward the end-consumer. As organizations strive to focus on core competencies and becoming more flexible, they reduce their ownership of raw materials sources and distribution channels. These functions are increasingly being outsourced to other entities that can perform the activities better or more cost effectively. The effect is to increase the number of organizations involved in satisfying customer demand, while reducing management control of daily logistics operations. Less control and more supply chain partners led to the creation of supply chain management concepts. The purpose of supply chain management is to improve

trust and collaboration among supply chain partners, thus improving inventory visibility and the velocity of inventory movement. Several models have been proposed for understanding the activities required to manage material movements across organizational and functional boundaries. SCOR is a supply chain management model promoted by the Supply Chain Council. Another model is the SCM Model proposed by the Global Supply Chain Forum (GSCF). Supply chain activities can be grouped into strategic, tactical, and operational levels . The CSCMP has adopted The American Productivity & Quality Center (APQC) Process Classification FrameworkSM a high-level, industry-neutral enterprise process model that allows organizations to see their business processes from a cross-industry viewpoint[4]. [edit] Strategic Strategic network optimization, including the number, location, and size of warehousing, distribution centers, and facilities. Strategic partnerships with suppliers, distributors, and customers, creating communication channels for critical information and operational improvements such as cross docking, direct shipping, and thirdparty logistics. Product life cycle management, so that new and existing products can be optimally integrated into the supply chain and capacity management activities. **Information technoloy chain operations. Where-to-make and what-to-make-or-buy decisions. Aligning overall organizational strategy with supply strategy. It is for long term and needs resource comittement. [edit] Tactical Sourcing contracts and other purchasing decisions. Production decisions, including contracting, scheduling, and planning process definition. Inventory decisions, including quantity, location, and quality of inventory. Transportation strategy, including frequency, routes, and contracting. Benchmarking of all operations against competitors and implementation of best practices throughout the enterprise. Milestone payments. Focus on customer demand.

[edit] Operational Daily production and distribution planning, including all nodes in the supply chain. Production scheduling for each manufacturing facility in the supply chain (minute by minute). Demand planning and forecasting, coordinating the demand forecast of all customers and sharing the forecast with all suppliers. Sourcing planning, including current inventory and forecast demand, in collaboration with all suppliers. Inbound operations, including transportation from suppliers and receiving inventory. Production operations, including the consumption of materials and flow of finished goods. Outbound operations, including all fulfillment activities, warehousing and transportation to customers. Order promising, accounting for all constraints in the supply chain, including all suppliers, manufacturing facilities, distribution centers, and other customers. [edit] Supply chain management Organizations increasingly find that they must rely on effective supply chains, or networks, to successfully compete in the global market and networked economy.[5] In Peter Drucker's (1998) new management paradigms, this concept of business relationships extends beyond traditional enterprise boundaries and seeks to organize entire business processes throughout a value chain of multiple companies. During the past decades, globalization, outsourcing and information technology have enabled many organizations, such as Dell and Hewlett Packard, to successfully operate solid collaborative supply networks in which each specialized business partner focuses on only a few key strategic activities (Scott, 1993). This inter-organizational supply network can be acknowledged as a new form of organization. However, with the complicated interactions among the players, the network structure fits neither "market" nor "hierarchy" categories (Powell, 1990). It is not clear what kind of performance impacts different supply network structures could have on firms, and little is known about the coordination conditions and trade-offs that may exist among the players. From a systems perspective, a complex network structure can be decomposed into individual component firms (Zhang and Dilts, 2004). Traditionally, companies in a supply network concentrate on the inputs and outputs of the processes, with little concern for the internal management working of other individual players. Therefore, the choice of an internal management control structure is known to impact local firm performance (Mintzberg, 1979). In the 21st century, changes in the business environment have contributed to the development of supply chain networks. First, as an outcome of globalization and the proliferation of multinational

companies, joint ventures, strategic alliances and business partnerships, significant success factors were identified, complementing the earlier "Just-In-Time", "Lean Manufacturing" and "Agile Manufacturing" practices.[6] Second, technological changes, particularly the dramatic fall in information communication costs, which are a significant component of transaction costs, have led to changes in coordination among the members of the supply chain network (Coase, 1998). Many researchers have recognized these kinds of supply network structures as a new organization form, using terms such as "Keiretsu", "Extended Enterprise", "Virtual Corporation", "Global Production Network", and "Next Generation Manufacturing System".[7] In general, such a structure can be defined as "a group of semi-independent organizations, each with their capabilities, which collaborate in everchanging constellations to serve one or more markets in order to achieve some business goal specific to that collaboration" (Akkermans, 2001). The security management system for supply chains is described in ISO/IEC 28000 and ISO/IEC 28001 and related standards published jointly by ISO and IEC. [edit] Developments in Supply Chain Management Six major movements can be observed in the evolution of supply chain management studies: Creation, Integration, and Globalization (Lavassani et al., 2008a), Specialization Phases One and Two, and SCM 2.0. 1. Creation Era The term supply chain management was first coined by a U.S. industry consultant in the early 1980s. However, the concept of a supply chain in management was of great importance long before, in the early 20th century, especially with the creation of the assembly line. The characteristics of this era of supply chain management include the need for large-scale changes, re-engineering, downsizing driven by cost reduction programs, and widespread attention to the Japanese practice of management. 2. Integration Era This era of supply chain management studies was highlighted with the development of Electronic Data Interchange (EDI) systems in the 1960s and developed through the 1990s by the introduction of Enterprise Resource Planning (ERP) systems. This era has continued to develop into the 21st century with the expansion of internet-based collaborative systems. This era of supply chain evolution is characterized by both increasing value-adding and cost reductions through integration. 3. Globalization Era The third movement of supply chain management development, the globalization era, can be characterized by the attention given to global systems of supplier relationships and the expansion of supply chains over national boundaries and into other continents. Although the use of global sources in the supply chain of organizations can be traced back several decades (e.g., in the oil industry), it was not until the late 1980s that a considerable number of organizations started to integrate global sources into their core business. This era is characterized by the globalization of supply chain management in

organizations with the goal of increasing their competitive advantage, value-adding, and reducing costs through global sourcing. 4. Specialization EraPhase One: Outsourced Manufacturing and Distribution In the 1990s industries began to focus on core competencies and adopted a specialization model. Companies abandoned vertical integration, sold off non-core operations, and outsourced those functions to other companies. This changed management requirements by extending the supply chain well beyond company walls and distributing management across specialized supply chain partnerships. This transition also re-focused the fundamental perspectives of each respective organization. OEMs became brand owners that needed deep visibility into their supply base. They had to control the entire supply chain from above instead of from within. Contract manufacturers had to manage bills of material with different part numbering schemes from multiple OEMs and support customer requests for work in-process visibility and vendor-managed inventory (VMI). The specialization model creates manufacturing and distribution networks composed of multiple, individual supply chains specific to products, suppliers, and customers who work together to design, manufacture, distribute, market, sell, and service a product. The set of partners may change according to a given market, region, or channel, resulting in a proliferation of trading partner environments, each with its own unique characteristics and demands. 5. Specialization EraPhase Two: Supply Chain Management as a Service Specialization within the supply chain began in the 1980s with the inception of transportation brokerages, warehouse management, and non-asset-based carriers and has matured beyond transportation and logistics into aspects of supply planning, collaboration, execution and performance management. At any given moment, market forces could demand changes from suppliers, logistics providers, locations and customers, and from any number of these specialized participants as components of supply chain networks. This variability has significant effects on the supply chain infrastructure, from the foundation layers of establishing and managing the electronic communication between the trading partners to more complex requirements including the configuration of the processes and work flows that are essential to the management of the network itself. Supply chain specialization enables companies to improve their overall competencies in the same way that outsourced manufacturing and distribution has done; it allows them to focus on their core competencies and assemble networks of specific, best-in-class partners to contribute to the overall value chain itself, thereby increasing overall performance and efficiency. The ability to quickly obtain and deploy this domain-specific supply chain expertise without developing and maintaining an entirely unique and complex competency in house is the leading reason why supply chain specialization is gaining popularity.

Outsourced technology hosting for supply chain solutions debuted in the late 1990s and has taken root primarily in transportation and collaboration categories. This has progressed from the Application Service Provider (ASP) model from approximately 1998 through 2003 to the On-Demand model from approximately 2003-2006 to the Software as a Service (SaaS) model currently in focus today. 6. Supply Chain Management 2.0 (SCM 2.0) Building on globalization and specialization, the term SCM 2.0 has been coined to describe both the changes within the supply chain itself as well as the evolution of the processes, methods and tools that manage it in this new "era". Web 2.0 is defined as a trend in the use of the World Wide Web that is meant to increase creativity, information sharing, and collaboration among users. At its core, the common attribute that Web 2.0 brings is to help navigate the vast amount of information available on the Web in order to find what is being sought. It is the notion of a usable pathway. SCM 2.0 follows this notion into supply chain operations. It is the pathway to SCM results, a combination of the processes, methodologies, tools and delivery options to guide companies to their results quickly as the complexity and speed of the supply chain increase due to the effects of global competition, rapid price fluctuations, surging oil prices, short product life cycles, expanded specialization, near-/far- and off-shoring, and talent scarcity. |[pic] |This article appears to contain a large number of buzzwords. Specific concerns can be found on the Talk page. Please improve this | | |article if you can. (February 2010) |

SCM 2.0 leverages proven solutions designed to rapidly deliver results with the agility to quickly manage future change for continuous flexibility, value and success. This is delivered through competency networks composed of best-of-breed supply chain domain expertise to understand which elements, both operationally and organizationally, are the critical few that deliver the results as well as through intimate understanding of how to manage these elements to achieve desired results. Finally, the solutions are delivered in a variety of options, such as no-touch via business process outsourcing, midtouch via managed services and software as a service (SaaS), or high touch in the traditional software deployment model. [edit] Supply chain business process integration Successful SCM requires a change from managing individual functions to integrating activities into key supply chain processes. An example scenario: the purchasing department places orders as requirements become known. The marketing department, responding to customer demand, communicates with several distributors and retailers as it attempts to determine ways to satisfy this demand. Information shared between supply chain partners can only be fully leveraged through process integration.

Supply chain business process integration involves collaborative work between buyers and suppliers, joint product development, common systems and shared information. According to Lambert and Cooper (2000), operating an integrated supply chain requires a continuous information flow. However, in many companies, management has reached the conclusion that optimizing the product flows cannot be accomplished without implementing a process approach to the business. The key supply chain processes stated by Lambert (2004) [8] are: Customer relationship management Customer service management Demand management Order fulfillment Manufacturing flow management Supplier relationship management Product development and commercialization Returns management Much has been written about demand management. Best-in-Class companies have similar characteristics, which include the following: a) Internal and external collaboration b) Lead time reduction initiatives c) Tighter feedback from customer and market demand d) Customer level forecasting One could suggest other key critical supply business processes which combine these processes stated by Lambert such as: a. Customer service management b. Procurement c. Product development and commercialization d. Manufacturing flow management/support e. Physical distribution f. Outsourcing/partnerships g. Performance measurement a) Customer service management process

Customer Relationship Management concerns the relationship between the organization and its customers. Customer service is the source of customer information. It also provides the customer with real-time information on scheduling and product availability through interfaces with the company's production and distribution operations. Successful organizations use the following steps to build customer relationships: determine mutually satisfying goals for organization and customers establish and maintain customer rapport produce positive feelings in the organization and the customers b) Procurement process Strategic plans are drawn up with suppliers to support the manufacturing flow management process and the development of new products. In firms where operations extend globally, sourcing should be managed on a global basis. The desired outcome is a win-win relationship where both parties benefit, and a reduction in time required for the design cycle and product development. Also, the purchasing function develops rapid communication systems, such as electronic data interchange (EDI) and Internet linkage to convey possible requirements more rapidly. Activities related to obtaining products and materials from outside suppliers involve resource planning, supply sourcing, negotiation, order placement, inbound transportation, storage, handling and quality assurance, many of which include the responsibility to coordinate with suppliers on matters of scheduling, supply continuity, hedging, and research into new sources or programs. c) Product development and commercialization Here, customers and suppliers must be integrated into the product development process in order to reduce time to market. As product life cycles shorten, the appropriate products must be developed and successfully launched with ever shorter time-schedules to remain competitive. According to Lambert and Cooper (2000), managers of the product development and commercialization process must: 1. coordinate with customer relationship management to identify customer-articulated needs; 2. select materials and suppliers in conjunction with procurement, and 3. develop production technology in manufacturing flow to manufacture and integrate into the best supply chain flow for the product/market combination. d) Manufacturing flow management process The manufacturing process produces and supplies products to the distribution channels based on past forecasts. Manufacturing processes must be flexible to respond to market changes and must accommodate mass customization. Orders are processes operating on a just-in-time (JIT) basis in minimum lot sizes. Also, changes in the manufacturing flow process lead to shorter cycle times, meaning improved responsiveness and efficiency in meeting customer demand. Activities related to planning,

scheduling and supporting manufacturing operations, such as work-in-process storage, handling, transportation, and time phasing of components, inventory at manufacturing sites and maximum flexibility in the coordination of geographic and final assemblies postponement of physical distribution operations. e) Physical distribution This concerns movement of a finished product/service to customers. In physical distribution, the customer is the final destination of a marketing channel, and the availability of the product/service is a vital part of each channel participant's marketing effort. It is also through the physical distribution process that the time and space of customer service become an integral part of marketing, thus it links a marketing channel with its customers (e.g., links manufacturers, wholesalers, retailers). f) Outsourcing/partnerships This is not just outsourcing the procurement of materials and components, but also outsourcing of services that traditionally have been provided in-house. The logic of this trend is that the company will increasingly focus on those activities in the value chain where it has a distinctive advantage, and outsource everything else. This movement has been particularly evident in logistics where the provision of transport, warehousing and inventory control is increasingly subcontracted to specialists or logistics partners. Also, managing and controlling this network of partners and suppliers requires a blend of both central and local involvement. Hence, strategic decisions need to be taken centrally, with the monitoring and control of supplier performance and day-to-day liaison with logistics partners being best managed at a local level. g) Performance measurement Experts found a strong relationship from the largest arcs of supplier and customer integration to market share and profitability. Taking advantage of supplier capabilities and emphasizing a long-term supply chain perspective in customer relationships can both be correlated with firm performance. As logistics competency becomes a more critical factor in creating and maintaining competitive advantage, logistics measurement becomes increasingly important because the difference between profitable and unprofitable operations becomes more narrow. A.T. Kearney Consultants (1985) noted that firms engaging in comprehensive performance measurement realized improvements in overall productivity. According to experts, internal measures are generally collected and analyzed by the firm including 1. Cost 2. Customer Service 3. Productivity measures 4. Asset measurement, and 5. Quality.

External performance measurement is examined through customer perception measures and "best practice" benchmarking, and includes 1) customer perception measurement, and 2) best practice benchmarking. Components of Supply Chain Management are 1. Standardization 2. Postponement 3. Customization [edit] Theories of supply chain management Currently there is a gap in the literature available on supply chain management studies: there is no theoretical support for explaining the existence and the boundaries of supply chain management. A few authors such as Halldorsson, et al. (2003), Ketchen and Hult (2006) and Lavassani, et al. (2008b) have tried to provide theoretical foundations for different areas related to supply chain by employing organizational theories. These theories include: Resource-Based View (RBV) Transaction Cost Analysis (TCA) Knowledge-Based View (KBV) Strategic Choice Theory (SCT) Agency Theory (AT) Institutional theory (InT) Systems Theory (ST) Network Perspective (NP) [edit] Supply chain sustainability Supply chain sustainability is a business issue affecting an organisations supply chain or logistics network and is frequently quantified by comparison with SECH ratings. SECH ratings are defined as social, ethical, cultural and health footprints. Consumers have become more aware of the environmental impact of their purchases and companies SECH ratings and, along with nongovernmental organisations ([NGO]s), are setting the agenda for transitions to organically-grown foods, anti-sweatshop labour codes and locally-produced goods that support independent and small businesses. Because supply chains frequently account for over 75% of a companys carbon footprint*9+ many organisations are exploring how they can reduce this and thus improve their SECH rating. [edit] Components of supply chain management integration The management components of SCM The SCM components are the third element of the four-square circulation framework. The level of integration and management of a business process link is a function of the number and level, ranging

from low to high, of components added to the link (Ellram and Cooper, 1990; Houlihan, 1985). Consequently, adding more management components or increasing the level of each component can increase the level of integration of the business process link. The literature on business process reengineering,[10] buyer-supplier relationships,[11] and SCM[12] suggests various possible components that must receive managerial attention when managing supply relationships. Lambert and Cooper (2000) identified the following components: Planning and control Work structure Organization structure Product flow facility structure Information flow facility structure Management methods Power and leadership structure Risk and reward structure Culture and attitude However, a more careful examination of the existing literature[13] leads to a more comprehensive understanding of what should be the key critical supply chain components, the "branches" of the previous identified supply chain business processes, that is, what kind of relationship the components may have that are related to suppliers and customers. Bowersox and Closs states that the emphasis on cooperation represents the synergism leading to the highest level of joint achievement (Bowersox and Closs, 1996). A primary level channel participant is a business that is willing to participate in the inventory ownership responsibility or assume other aspects of financial risk, thus including primary level components (Bowersox and Closs, 1996). A secondary level participant (specialized) is a business that participates in channel relationships by performing essential services for primary participants, including secondary level components, which support primary participants. Third level channel participants and components that support the primary level channel participants and are the fundamental branches of the secondary level components may also be included. Consequently, Lambert and Cooper's framework of supply chain components does not lead to any conclusion about what are the primary or secondary (specialized) level supply chain components (see Bowersox and Closs, 1996, p. 93). That is, what supply chain components should be viewed as primary or secondary, how should these components be structured in order to have a more comprehensive supply chain structure, and how to examine the supply chain as an integrative one (See above sections 2.1 and 3.1).

Reverse Supply Chain Reverse logistics is the process of managing the return of goods. Reverse logistics is also referred to as "Aftermarket Customer Services". In other words, any time money is taken from a company's warranty reserve or service logistics budget one can speak of a reverse logistics operation. [edit] Global supply chain management Global supply chains pose challenges regarding both quantity and value: Supply and Value Chain Trends Globalization Increased cross border sourcing Collaboration for parts of value chain with low-cost providers Shared service centers for logistical and administrative functions Increasingly global operations, which require increasingly global coordination and planning to achieve global optimums Complex problems involve also midsized companies to an increasing degree, These trends have many benefits for manufacturers because they make possible larger lot sizes, lower taxes, and better environments (culture, infrastructure, special tax zones, sophisticated OEM) for their products. Meanwhile, on top of the problems recognized in supply chain management, there will be many more challenges when the scope of supply chains is global. This is because with a supply chain of a larger scope, the lead time is much longer. Furthermore, there are more issues involved such as multicurrencies, different policies and different laws. The consequent problems include:1. different currencies and valuations in different countries; 2. different tax laws (Tax Efficient Supply Chain Management); 3. different trading protocols; 4. lack of transparency of cost and profit. Case Study On RPG Spencer Supply Chain Strategy for Agri Retail

MANTHAN The Retail Case Contest AMAETHON 2007 IIM AHMEDABAD Submitted by

Team Evanescence

Team Leader: Mitul Joshi mitul.j08@fms.edu 09911459121

Team Members: Anand Natarajan Mitul Joshi Viral Nagar

Faculty of Management Studies University of Delhi TABLE OF CONTENTS

TOPIC Pg No EXECUTIVE SUMMARY 2 1. SWOT Analysis 3 4

2. Existing Supply Chain Model What We Are Doing 3. Behind Enemy Lines: What They are Doing 4. Suggested Improvements 8 6

5. A Blueprint Managing the Supply Chain 6. Conclusion REFERENCES APPENDIX 16 17 18

10

EXECUTIVE SUMMARY

RPG-Spencer is the undisputed leader in the upcoming and hugely promising agri-retail sector in India, especially in South India, where it enjoys a clear edge over its competitors. With constant improvement, their supply chain strategy has progressed from one replete with inefficiencies to one of direct sourcing from farmers, resulting in better realizations for both farmer and retailer.

In the wake of favorable FDI policies of the Government, corporate giants from both India and abroad are entering the fray with new, innovative strategies to gain a foothold in the market. RPG-Spencer faces the risk of its supply chain strategy being replicated, thus leading to erosion of its competitive advantage in the agri-retail sector.

This case analysis proposes a blueprint of the strategy that could be adopted by RPG-Spencer to achieve its twin goals: To retain its lead in the south Geographical expansion to Northern India

We begin with a SWOT analysis of the current supply chain model adopted by RPG-Spencer. The opportunities that emerge from the SWOT analysis are then leveraged to bring about further improvements in the supply chain through backward linkages into agri-input retail and investments in technology.

We then present our procurement and distribution strategy for the northern market, which requires the setting up of "agri-input retail stores" in the vicinity of farmlands, also doubling up as "warehousing centers", to house the farm produce till it is shipped to the consolidation centre.

We conclude by providing a Logistics Strategy for the northern market which will make use of thirdparty logistics to leverage the economies of scale resulting from such an arrangement.

1. SWOT ANALYSIS

We begin with a SWOT analysis of the RPG supply chain strategy which will help us evaluate the current state of its business and suggest new strategies for expansion.

2. EXISTING SUPPLY CHAIN MODEL WHAT WE ARE DOING One of the first players to enter the agri-retail sector, RPG started its operations in South India in the late 1990s. In the beginning, multiple intermediaries were involved in this food chain, causing inefficiencies in operation, leading to rising costs and lower profits. To address this problem and to gain a sustainable competitive advantage, they switched to a Direct Sourcing' strategy in which the agricultural produce was procured directly from farmers, resulting in better margins for both.

Today, RPG Spencer sources directly from about 150 farmers who are first provided with specifications regarding quality, quantity, size and delivery dates. It provides trucks to the farmers for transporting the produce from the farms to the consolidation center in time without wastage. Once the products reach the direct consolidation center they are sorted, graded, profiled and sent across to the retail outlets. Transportation cost is charged for the use of the trucks.

RPG operates in the South through a hub and spoke distribution model where a central node or a consolidation centre (hub) services the requirements of various closely located outlets (spokes). This enables RPG to achieve significant cost advantages by the centralized purchasing of goods in huge quantities and distributing them through its own logistics infrastructure to the retail outlets.

This model has both benefits and drawbacks, some of which are discussed below:

3. BEHIND ENEMY LINES: WHAT THEY ARE DOING With companies like Reliance, Bharti, Mahindra, ITC, and a host of others showcasing interest in the agriculture sector, will their "farm to fork" plans of procurement and marketing succeed? We shall now take a look at the strategies employed by the various competitors in the agri-retail sector and the challenges faced by these companies. Broadly, companies entering the business are opting for three broad farming models - cultivation on company-owned land, farming on leased land and buying produce directly from large farmers or entering into procurement agreements from commission agents or 'aggregators' at mandis or large markets.

4. SUGGESTED IMPROVEMENTS An agile and adaptive supply chain is the key to success in retail. In the wake of big players entering the agri-retail market, with the requisite scale to build an efficient supply chain, RPG faces the threat of its successful supply chain strategy being replicated and its competitive advantage being eroded. Significant investments should be made by Spencer's to bring better efficiency into every element of the supply chain, right from post-harvest handling and packaging to distribution and logistics.

Our suggested supply chain strategy for RPG Spencer's involves the following:

1. Incentives for suppliers (farmers): In order to procure the best quality produce at the lowest possible prices, RPG should focus on maintaining strong and enduring partnerships with farmers, while looking to forge new alliances in order to get better bargaining power with them. They should look at backward linkages in all aspects of this value chain, from providing seeds, fertilizers and pesticides to helping farmers improve irrigation and avail the latest technologies to providing credit facilities, contract farming, processing, setting up cold chains and warehouses. They could consider alliances with agriinput suppliers like KRIBHCO and Mahindra & Mahindra. These corporate farming initiatives would go a long way towards creating a strong network of farmers servicing their retail outlets with good quality produce.

2. Investments in technology: RPG should take a lead in removing fat from the supply chain through investments in new technologies for managing the supply chain process. It should adopt the most advanced IT tools and applications in all supply chain functions, starting from demand forecasting, procurement, logistics, distribution and inventory management. The following specific technological improvements are suggested:

Using EDI for procurement:

A good EDI software enables the suppliers to download purchase orders along with store-to-store sales information relating to their products sold. On receiving information about the sales of various products, the suppliers can ship the required goods to the store's distribution centers. By planning its purchases well, Spencer's would be able to stock goods in right quantities and avoid overstocking at the stores. How EDI for Procurement works: The data extracted from a business process is usually transmitted over a Value Added Network (VAN) and delivers it to a "trading partner". Once the trading partner receives the information, the EDI systems will automatically translate the standardized EDI data and process it. EDI implementation is a totally automated interaction between the business applications, human intervention is not required. Benefits: Automates and streamlines the company's operations by simplifying order, acknowledgment and payment process Maximizes its cash flow, reduce costs, cycle times and lead times and improves data accuracy Resulting labor savings and elimination of common errors can provide huge savings for Spencer.

Automation of distribution centers: The consolidation centers could be installed with fully automated conveyor belts. It could employ the technique of Cross-Docking which would enable the company to receive goods from farmers and dispatch them to the respective retail outlets in less than a day, thus minimizing inventory costs and handling costs. At the distribution centers, bar-codes on the goods entering the centers would be scanned, following which they would be sorted out according to orders received from the individual stores. The goods would then be sent to the other side of the center on fast-moving conveyor belts and loaded into the trucks heading to the stores, on a continual basis. This process would ensure that the inventory stays at the store for very little time, also enabling quick replenishment of goods at the stores.

Use of Voice-based systems to handle logistics at the consolidation centre: The proposed voicebased system would consist of portable Voice Recognition Talkman Terminals (VRTT) and a built-in speed spectrum radio module that would communicate over the company's wireless LAN. Each person responsible for order-picking would be provided with a microphone/ speaker handset, connected to the portable (VOF) system that could be worn on his/her waist belt. They would be guided by the voice to item locations in the distribution centers. The VOF system would verify quantities picked, and could respond to a variety of requests such as providing product details (type, price and barcode number) as well as repeating the previous pick. By installing the VOF system, RPG could eliminate mispicks and product labeling costs since the system would not require paper lists and labels to be affixed on the goods for locating them.

Work with farmers on a real time basis: The Internet could be used to determine product wise demand forecast and supply constraints if any to prevent overstocking and wastages at distribution centers. Store sales data could be analyzed by RPG, to determine, with reasonable accuracy, what goods to order, in what quantities to order, and also determine to quantities of goods to be dispatched to the various stores. The suppliers could plan out their delivery schedules well in advance, based on the prior information received about the products to be replenished in various distribution centers.

5. A BLUEPRINT - MANAGING THE SUPPLY CHAIN The above section suggested techniques to improve the efficiency of the current supply chain strategy. In this section, we lay out a detailed blueprint of our suggested strategy to manage the supply chain along with specific ways to fight the competition. We look at various aspects of the agri-supply chain and how each is managed:

1.

Procurement and distribution:

We propose to continue with the "direct sourcing" model where in goods are procured directly from the farmers removing all the intermediaries along the value chain to get the best realization for both parties.

Since the company aims to expand in the northern market, where it presently does not have a considerable presence, the farmers in the states of northern India with whom it has entered into contracts cannot be immediately trusted to provide the best quality of produce with consistency. Hence, RPG should invest in setting up "agri-input retail stores" in the vicinity of the farms. Each store would provide help to improve the quality of agriculture in the area through 24x7 support by a team of qualified agronomists. They would provide a complete range of good quality, multi-brand agri-inputs, access to modern retail banking and farm credit at reasonable rates of interest, farm produce buyback opportunities and access to new markets. This would ensure that the company always gets consistently good quality produce from the farmers.

Each such "retail store" would also have an attached warehouse. The farmers living in the vicinity would bring their produce to these retail stores and drop them in the warehouse. Thus, in this new model, the produce, instead of being shipped to the consolidation centre would just be dropped here in the warehouse. The company would then be responsible for shipping this produce to the consolidation centre and finally to the retail outlets. The new model still follows the Hub and Spoke distribution model in which the consolidation centre (hub) services the retail outlets (spoke). Initially, we propose to target the states of Punjab, Haryana and Himachal Pradesh. Each such "Retail store" would operate in a catchment of about 20 km radius, so that farmers can arrange for their own transport to get to the store.

The model above would be followed in the northern part of the country where the company is looking to expand its operations. However, the well established procurement and distribution model followed in the south would continue to operate unchanged.

2.

Logistics Management:

With the influx of deep-pocketed industry giants into agri-retail, it has become necessary for RPG to identify a strategy which would help them retain the edge. Spencer is aiming to do the same by looking at geographical expansion into North India market. However, its only presence in the North is in the form of retail stores in Delhi, Ghaziabad, Noida, Faridabad and Gurgaon. For expansion in the North, Spencer's will have to overcome the following hurdles:

etc.

Lack of knowledge about the area in terms of logistical requirements, distribution of farmlands,

No strategic partnerships/alliances with the farmers

The above problems could be addressed in a cost-effective manner through third-party logistics (3PL).

A 3PL provider is regarded as an integrated logistics service provider. IT-related activities for controlling goods flow such as order processing, and inventory management, among others are included in the function of the 3PL provider. The 3PL provider can make various advises to answer customers' requirements concerned with marketing strategy, information system configuration, cooperative transportation, etc.

For the southern market, we propose to build a robust cold chain infrastructure in order to minimize wastages and maximize supply chain efficiency. Investments in real estate and cold chain infrastructure are capital intensive and will yield slow returns. However, 100 percent foreign direct investment (FDI) is allowed in this sector. The Infrastructure consists of items such as Coolers, Warehouses, Refrigerated Trucks, and Carriers. Power disruptions and high petrol and diesel prices make efficient operation of the facilities very expensive. This is the right time for building cold chain infrastructure and giving it for rentals.

6. CONCLUSION

A SWOT analysis of the RPG supply chain strategy has helped us evaluate the current state of its business and suggest new strategies for expansion. Keeping in mind various competitors' strategies, we suggest improvements such as incentives for farmers and investments in technology.

The future strategy in the north will consist of setting up agri-retail stores in villages that it sources food grains from, which would provide agri-inputs to the farmer and will be monitored by a team of agronomists. This would provide multifarious benefits to both farmers and RPG.

In the south, we propose continuing with the well established procurement and distribution model followed unchanged, and also developing robust cold chain infrastructure to minimize wastages.

REFERENCES http://www.isb.edu/faculty/Working_Papers_pdfs/Can_India_be_the_Food_Basket_for_the_W orld.pdf http://www.consultavalon.com/perspe/agribiz.pdf http://www.itcportal.com/newsroom/press5dec06.htm http://www.businessworld.in/issue/press_rel01.asp http://in.biz.yahoo.com/060728/203/6694c.html http://www.tezu.ernet.in/dba/Faculty/mrinmoy/retail.htm http://www.apo-tokyo.org/projreps/projrep0002.htm

Vishwanadham, N: Food and Retail Chains in India - ISAS working paper No. 15 Date: 6 October 2006, National University of Singapore Jena, Anil Kumar & Gupta, Sunil Kumar: E-Agribusiness, Spice, Vol. 1, No. 9, August 2005, PGPABM, Manage Lokesha. H., Lalith Achoth. Hugar. L. B., Amrutha, C. P. And Deshmanya. J. B.: Agri-Business Sector in India SWOT Analysis: Agricultural Marketing, July A September, 2002 Vol. XLV, No. 2, I. S. S. N. 0002 1555, Directorate of Marketing & Inspection Ministry of Agriculture (Department of Agriculture & Co-operation), Government of India Porter, Michael E.: Competitive Strategy- Techniques for Analyzing Industries and Competitors

Case Studies in Supply Chain Management, Volume 1: ICFAI Center for Management Research

APPENDIX EXHIBIT I: Agri-Hubs North India Various agri hubs in the northern part of the country have been identified as follows:

Source: http://www.rbh.in/Home/clusters/Agri%20Clusters.pdf EXHIBIT II: Third Party Logistics

Usage of third party logistics in various areas[pic] SCHOOL OF BUSINESS & ECONOMICS

BACHELOR OF BUSINESS MANAGEMENT (BBM)

LOGISTICS IN SUPPLIES AND MANAGEMENT COURSE CODE: BBM 347

COURSE FACILITATOR: J MWANZA

GROUP WORK DISCUSSION |NO | |1. | |2. | |3. | |4. | |5. | |6. | |7. | |GROUP MEMBERS |ADM NO |ROLE |SIGN

|ANNASTASIA MULWA | |LEAH N. MWATHI

|BBM/2670/10

|Researcher - Compiler

|BBM/ 399/10

|Researcher

|ALI BULLE OSMAN

|BBM/2844/10

|Researcher

|SALOME N. OBUYA

|BBM/2781/10

|Researcher

|STEPHEN M ETYANG

|BBM/1786/08

|Researcher

|JOSEPHINE O. OFULA

|BBM/2772/10

|Researcher

|SHEM O. OGECHI

|BBM/2663/10

|Researcher

PRESENTED TO MOI UNIVERSITY IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF A BACHELORS DEGREE IN BUSINESS MANAGEMENT MARCH - 2011

i)

Question Discussion on Transport Planning

ii)

ABSTRACT

Since transportation is such an important component of contemporary society, capable of producing significant benefits, yet giving rise to many negative externalities, appropriate policies need to be devised to maximize the benefits and minimize the inconveniences. At the same time the allocation, design and construction of such transport infrastructure and services must be subject to careful planning, both by public and private agencies.

In this discussion a distinction is drawn between policy and planning. The major features of the policy and planning processes are examined. Because they both have to reflect the fundamental changes in society and contemporary issues and problems, policies and planning change. The changing orientation of public policy is described and the chapter goes on goes on to explore the evolving nature of urban transport planning and intervention methods.

Transport planning is usually focused on specific problems or on broad transport concerns at a local level. It has been traditionally a preoccupation of lower tier governments, such as the state or municipality. Because of this fact, transport planning is most developed in the urban sphere, and it is there where most experience has been gathered. The planning process, however, has a number of similarities with the policy process. Identifying a problem, seeking options and implementing the chosen strategy are essential steps in planning too. Because it tends to deal with localized problems, the solutions adopted in transport planning tend to be much more exact and specific than policy directives.

Transportation helps shape an areas economic health and quality of life. Not only does the transportation system provide for the mobility of people and goods, it also influences patterns of growth and economic activity by providing access to land. The performance of the system affects public policy concerns like air quality, environmental resource consumption, social equity, land use, urban growth, economic development, safety, and security.

Transportation planning recognizes the critical links between transportation and other societal goals. The planning process is more than merely listing highway and transit capital projects. It requires developing strategies for operating, managing, maintaining, and financing the areas transportation system in such a way as to advance the areas long-term goals. iii) Item i) Question Table of Contents Page No. 1

ii) iii) 1.0 1.1 2.0 2.1 3.0 3.1 3.2 3.3 3.4 3.5 3.6 3.7 4.0 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 5.0

Abstract Table of Contents Introduction Key roles by transport planners Background of transport planning Transportation planning process Literature Review Transport strategy Transport functions Principles of transportation management and operations Participants in Transport Decisions Transport infrastructure Legal classification of carrier Problems with transport planning Application Case Study of Kenya Pipeline Co. Ltd Introduction Fuel Transportation/Distribution Network Available Transport Modes Modalities of reducing Transportation Costs Challenges in use of Pipelines Challenges in Rail Network Capacity Improvement Projects Other Projects under Implementation Conclusion on KPC Fuel Transport Planning Conclusion 22 23 24 21 19 10 4

2 3 4

4 5 6 6 6 7 8

18 19

19 20 21 21

22

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References

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1. Introduction Transportation planning is a field involved with the evaluation, assessment, design and sitting of transportation facilities (generally streets, highways, sidewalks (footways), bike lanes and public transport lines. Transport or transportation is the movement of people and goods from one location to another. Modes of transport include air, rail, road, water, cable, pipeline, and space. The field can be divided into infrastructure, vehicles, and operations. Transport planning allows for high utilization and less impact regarding new infrastructure. Using models of transport forecasting, planners are able to predict future transport patterns. On the operative level, logistics allows owners of cargo to plan transport as part of the supply chain. Transport as a field is studied through transport economics, the backbone for the creation of regulation policy by authorities. Transport engineering, a sub-discipline of civil engineering, and must take into account trip generation, trip distribution, mode choice and route assignment, while the operative level is handled through traffic engineering. Transport is a key necessity for specialization, allowing production and consumption of products to occur at different locations. Transport has throughout history been a spur to expansion; better transport allows more trade and a greater spread of people. Economic growth has always been dependent on increasing the capacity and rationality of transport. But the infrastructure and operation of transport has a great impact on the land and is the largest drainer of energy, making transport sustainability a major issue. 1. The following key roles must be performed by transport planners: take account of the social, economic and environmental context of their work understand the legal, regulatory policy and resource framework within which they work understand and create transport policies, strategies and plans that contribute to meeting social, economic and environmental needs design the necessary transport projects, systems and services understand the commercial aspects of operating transport systems and services know about and apply the relevant tools and techniques must be competent in all aspects of management, in particular communications, personal skills and project management.

2. Background of Transportation Planning Transportation planning plays a fundamental role in the state, region or communitys vision for its future. It includes a comprehensive consideration of possible strategies; an evaluation process that encompasses diverse viewpoints; the collaborative participation of relevant transportation-related agencies and organizations; and open, timely, and meaningful public involvement. Two major modes are composing the land transport system, roads and railways. Obviously, roads were established first, as rail technology only became available by the 18th century, in the midst on the industrial revolution. Historical considerations are important in assessing the structure of current land transportation networks. Modern roads tend to follow the structure established by previous roads, as it was the case for the modern European road network (especially in Italy, France and Britain) that follows the structure established by the Roman road network centuries before. The first land roads took their origins from trails which were generally used to move from one hunting territory to another. With the emergence of the first forms of nation-states trails started to be used for commercial purposes as trade expanded and some became roads, especially through the demystification of animals such as horses, mules and camels. The use of wheeled vehicles encouraged construction of better roads to support the additional weight. However, a road transport system planning requires a level of labor organization and administrative control that could only be provided by a form of governmental oversight offering some military protection over trade routes. In rejecting the former paradigm of building capacity, transport planners have turned increasingly to managing both demand and the transport system. Building roads has produced a car-oriented society in which the other modal alternatives have little opportunity to co-exist. Car ownership is beyond the ability of the transport planner to control directly and the question remains if it should. But car use and ownership is affected by land use and density, both elements that planners can affect. High population densities, in particular, favor walking, bicycling and public transit use. It is for this reason that a great deal of attention in planning is being paid to densification and integration. Transport planning allows for high utilization and less impact regarding new infrastructure. Using models of transport forecasting, planners are able to predict future transport patterns. On the operative level, logistics allows owners of cargo to plan transport as part of the supply chain. Transport as a field is studied through transport economics, the backbone for the creation of regulation policy by authorities. Transport engineering, a sub-discipline of civil engineering, and must take into account trip generation, trip distribution, mode choice and route assignment, while the operative level is handles through traffic engineering. 1. Transportation Planning Process Transportation planning is a cooperative process designed to foster involvement by all users of the system, such as the business community, community groups, environmental organizations, the traveling public, freight operators, and the general public, through a proactive public participation process.

Transportation planning includes a number of steps: Monitoring existing conditions; Forecasting future population and employment growth, including assessing projected land uses in the region and identifying major growth corridors; Identifying current and projected future transportation problems and needs and analyzing, through detailed planning studies, various transportation improvement strategies to address those needs; Developing long-range plans and short-range programs of alternative capital improvement and operational strategies for moving people and goods; Estimating the impact of recommended future improvements to the transportation system on environmental features, including air quality; and Developing a financial plan for securing sufficient revenues to cover the costs of implementing strategies. 3. Literature Review This is the information of what other authors are talking about transport planning. 1. Transport Strategy Achieving the objective of providing sustainable transport first requires the development of appropriate policies and supporting implementation strategies, followed by the design and introduction of a number of schemes 'on the ground'. Policy/strategy formulation entails a high-level decision-making process that in turn generates a series of scheme-specific processes, the outcomes of which collectively contribute to the success of the strategy as a whole. A strategy comprises a comprehensive programme of schemes and actions that are designed to achieve a set of agreed high-level objectives and targets. It might consist of a transport plan developed by a local authority (e.g. a 'Local Transport Plan') or a strategy for a particular transport mode or issue (e.g. a cycling strategy, or an air quality strategy). 2. Transport Functions The most visible of all functions of logistics is high contributor to logistics cost and includes:1. Product movement What is moved? Whether raw material, semi finished items, work in progress, finished goods, packaging material, rejected material, movement is required up or down the supply chain. Resources to be used by transportation include time, temporal costs - product is locked up during transit, hence

inaccessible, money, financial costs; administration costs, salaries, maintenance, etc, product loss and damage, cost of fuel for prime mover and nature of the movement. Environmental costs; guzzles natural fuels. Transportation creates congestion, air pollution and noise pollution. Environmental cost is tangible and substantially intangible. As transportation utilizes temporal, financial and environmental resources, items must be moved only when product value is raised The major objective of transportation is to move product from an origin location to a prescribed destination while minimizing temporal, financial, and environmental resource costs. Loss and damage expenses must also be minimized. At the same time, the movement must take place in a manner that meets customer demands regarding delivery performance and shipment information availability. 2. Product storage This is the temporary storage when loading and unloading is expensive storage space is not available or limited, vehicles kept moving on circuitous route or airplanes hovering. Another method to achieve temporary product storage is diversion. This occurs when an original shipment destination is changed while the delivery is in transit. Traditionally, the telephone was used to direct diversion strategies. Although product storage in transportation vehicles can be costly, it may be justified from a total-cost or performance perspective when loading or unloading costs, capacity constraints, or the ability to extend lead times are considered. 3. Principles of transportation management and operations The Principles of transportation are fundamental in evaluating transportation strategies. There are two fundamental principles guiding transportation management and operations, which are:1. Economy of scale Bulk shipping or transportation of goods at the same time brings down per unit transportation cost Although major advances have been made in the estimation of transportation cost functions in terms of functional specification and microeconomic properties, available studies present inconsistencies with observed industry behavior, and have been criticized as a reliable basis for policy design. The transportation function is identified as that component of the production function that relates output to characteristics of vehicles, terminals and rights-of-way. Using this framework, cost functions are derived for two simple transportation systems, which illustrates the ambiguity of the aggregate output definition and shows the importance of spatial complementarily in transportation activities. Eventual contradiction between economic wisdom and firms' behavior are shown to be explainable under the multi output perspective. 2. Economy of distance Cost per unit kilometer decreases as the distance moved increases. This refers to the characteristic that transportation cost per unit of distance decreases as distance increases. The rationale for distance

economies is similar to that for economies of scale. Specifically, the relatively fixed expense incurred to load and unload the vehicle must be spread over the variable expense per unit of distance. Longer distances allow the fixed expense to be spread over more miles, resulting in lower overall per mile charges. These principles are important considerations when evaluating alternative transportation strategies or operating practices. The objective is to maximize the size of the load and the distance that it is shipped while still meeting customer service expectations. 4. Participants in Transport Decisions The relationship between these parties may be related by ownership in some situations, such as when company-owned vehicles are used to transport goods between two company locations. In many cases, however, the parties are independently owned and operated. In order to understand the complexity of the transportation environment, it is necessary to review the role and perspective of each party. 1. Relationship between shipper, the consignee and the public The relationship between these parties may be related by ownership in some situations, such as when company-owned vehicles are used to transport goods between two company locations. In many cases, however, the parties are independently owned and operated. In order to understand the complexity of the transportation environment, it is necessary to review the role and perspective of each party 2. Shippers and Consignee The shipper wants predictable and minimum transit time, minimum cost, specified pick up times, zero loss and damage and timely exchange of information and invoicing. Consignee main aim is to have specified delivery times. 3. Carriers The carrier, as the intermediary, takes a somewhat different perspective. The wants of the carriers include; revenue maximization, cost minimization [labor, fuel and vehicle costs], flexibility in pick up and delivery times to consolidate moves. The perspective suggests that a carrier wants to charge the highest rate that the shipper (or consignee) will accept and minimize the labor, fuel, and vehicle costs required to move the goods. To achieve this objective, the carrier desires flexibility in pickup and delivery times to allow individual loads to be consolidated into economic moves. 4. Government The keen interest in flourishing national economy and hence in transportation is effective and efficient Public Distribution System. Control on carrier rates and licenses on own carrier service or infrastructural support - net work of roads, airports , ports and harbors. Transportation enables the efficient movement of products to markets throughout the country and thus promotes product availability at a reasonable cost. The situation in the Soviet Union prior to its breakup demonstrates the impact of an inadequate transportation system. Although not the only reason, the transportation

system was a contributing factor in the Soviet economy's inability to supply food to the market even though adequate production existed. 5. The Public Public involvement is integral to good transportation planning. Without meaningful public participation, there is a risk of making poor decisions, or decisions that have unintended negative consequences. With it, it is possible to make a lasting contribution to an area's quality of life. Public involvement is more than an agency requirement and more than a means of fulfilling a statutory obligation. Meaningful public participation is central to good decision making. The fundamental objective of public involvement programs is to ensure that the concerns and issues of everyone with a stake in transportation decisions are identified and addressed in the development of the policies, programs, and projects being proposed in their communities. Public involvement is integral to good transportation planning. Without meaningful public participation, there is a risk of making poor decisions, or decisions that have unintended negative consequences. With it, it is possible to make a lasting contribution to an area's quality of life. Public involvement is more than an agency requirement and more than a means of fulfilling a statutory obligation. Meaningful public participation is central to good decision making. The fundamental objective of public involvement programs is to ensure that the concerns and issues of everyone with a stake in transportation decisions are identified and addressed in the development of the policies, programs, and projects being proposed in their communities.

5. Transport Infrastructure Transport infrastructure consists of the fixed installations necessary for transport, and may be roads, railways, airways, waterways, canals and pipelines, and terminals such as airports, railway stations, bus stations, warehouses, trucking terminals, refueling depots (including fueling docks and fuel stations), and seaports. Terminals may be used both for interchange of passengers and cargo and for maintenance. Terminals such as airports, ports and stations, are locations where passengers and freight can be transferred from one vehicle or mode to another. For passenger transport, terminals are integrating different modes to allow riders to interchange to take advantage of each mode's advantages. For instance, airport rail links connect airports to the city centers and suburbs. The terminals for automobiles are parking lots, while buses and coaches can operates from simple stops. For freight, terminals act as transshipment points, though some cargo is transported directly from the point of production to the point of use. The financing of infrastructure can either be public or private. Transport is often a natural monopoly and a necessity for the public; roads, and in some countries railways and airports are funded through

taxation. New infrastructure projects can involve large spending, and are often financed through debt. Many infrastructure owners therefore impose usage fees, such as landing fees at airports, or toll plazas on roads. Independent of this, authorities may impose taxes on the purchase or use of vehicles.

1 Environment

Transport is a major use of energy, and burns most of the world's petroleum. This creates air pollution, including nitrous oxides and particulates, and is a significant contributor to global warming through emission of carbon dioxide,[27] for which transport is the fastest-growing emission sector.[28] By subsector, road transport is the largest contributor to global warming.[29] Environmental regulations in developed countries have reduced the individual vehicles emission; however, this has been offset by an increase in the number of vehicles, and more use of each vehicle.[27] Some pathways to reduce the carbon emissions of road vehicles considerably have been studied. Energy use and emissions vary largely between modes, causing environmentalists to call for a transition from air and road to rail and humanpowered transport, and increase transport electrification and energy efficiency. Other environmental impacts of transport systems include traffic congestion and automobileoriented urban sprawl, which can consume natural habitat and agricultural lands. By reducing transportation emissions globally, it is predicted that there will be significant positive effects on Earth's air quality, acid rain, smog and climate change. 1. Modal characteristics In recent years, disaggregate models based on discrete choice analysis methods, such as logit models, have been used to develop socioeconomic characteristics of households. A discrete choice analysis treats each individual household as a decision-maker and models it as selecting the alternative with the highest utility among those available at the time a choice is made. This technique is frequently used to predict the probability of choosing to own zero, one, two and three or more autos as a function of set of variables that enters in the utility function. A transport mode is a combination of the following: Traffic infrastructure: traffic routes, networks, nodes (stations, bus terminals, airport terminals), etc. Vehicles and containers: trucks, wagons, ships, aircraft and trains. A stationary or mobile workforce Propulsion system and power supply (traction)

Operations: driving, management, traffic signals, railway signaling, air traffic control, etc. 2. Different Modes of Transport Mode of transport (or means of transport or transport mode or transport modality or form of transport) is a term used to distinguish substantially different ways to perform transport. The most dominant modes of transport are aviation, rail transport, road transport and water transport, but other modes also exist, including pipelines, cable transport, space transport and off-road transport. Humanpowered transport and animal-powered transport is sometimes regarded as their own mode, but these normally also fall into the other categories. All modes are suitable for transporting goods, and most are suitable for transporting people.Each mode of transport has a fundamentally different technological solution and some require a separate environment. Each mode has its own infrastructure, vehicles, and operations, and often has unique regulations. Transport using more than one mode can be described as intermodal. 1. Rail Transport Rail transport is where a train runs along a set of two parallel steel rails, known as a railway or railroad. The rails are anchored perpendicular to ties (or sleepers) of timber, concrete or steel, to maintain a consistent distance apart, or gauge. The rails and perpendicular beams are placed on a foundation made of concrete, or compressed earth and gravel in a bed of ballast. Alternative methods include monorail and maglev. A train consists of one or more connected vehicles that run on the rails. Propulsion is commonly provided by a locomotive, that hauls a series of unpowered cars, that can carry passengers or freight. The locomotive can be powered by steam, diesel or by electricity supplied by trackside systems. Alternatively, some or all the cars can be powered, known as a multiple unit. Also, a train can be powered by horses, cables, gravity, pneumatics and gas turbines. Railed vehicles move with much less friction than rubber tires on paved roads, making trains more energy efficient, though not as efficient as ships. Rail transportation, like roads, has an important relationship with space, since it is the transport mode the most constrained by the physiography. These constraints are mainly technical and involve issues such as: Space consumption: Rail transportation has a low level of space consumption along lines, but its terminals are important consumers of space, especially in urban areas. This increases operation costs substantially. Still, rail terminals tend to be centrally located and accessible. Gradient and turns: Rail transportation can support a gradient of up to 4% (e.g. 40 meters per kilometer), but freight trains rarely tolerate more than 1%. This implies that an operational freight rail line requires 50 kilometers to climb 500 meters. Gradient are also important as they involve more energy consumption, particularly for freight trains traveling over long distances.

Vehicles: Rail transportation is very flexible in terms of vehicles and there is a wide variety of them filling different purposes. The locomotion technology ranges from steam, to diesel and. The recent trend has been a specialization of freight wagons, such as hopper wagons (grain, potash and fertilizers), triple hopper wagons (sand, gravel, sulfur and coal), flat wagons (wood, agricultural equipment, manufactured goods, containers), tanker wagons (petrochemical products), box wagons (livestock, paper, manufactured goods), car wagons and passengers wagons. Gauge: The standard gauge of 1.435 meters has been adopted in many parts of the world, but other gauges have been adopted in other areas. This makes integration of rail services very difficult, since both freight and passengers are required to change from one railway system to the other. Other factors that inhibit the movement of trains between different countries include signaling and electrification standards 3.5.3.2 Road Transport A road is an identifiable route, way or path between two or more places. Roads are typically smoothed, paved, or otherwise prepared to allow easy travel; though they need not be, and historically many roads were simply recognizable routes without any formal construction or maintenance. In urban areas, roads may pass through a city or village and be named as streets, serving a dual function as urban space easement and route. All road transport modes have limited potential to achieve economies of scale. This is due to size and weight constraints imposed by governments and also by the technical and economic limits of engines. In most jurisdictions, trucks and busses have specific weight and length restrictions which are imposed for safety reasons. In addition, there are serious limits on the traction capacities of cars, buses and trucks because of the considerable increases in energy consumption that accompany increases in the vehicle weight. For these reasons the carrying capacities of individual road vehicles are limited. Road transport, however, possesses significant advantages over other modes: The capital cost of vehicles is relatively small. This produces several key characteristics of road transport. Low vehicle costs make it comparatively easy for new users to gain entry, which helps ensure that the trucking industry, for example, is highly competitive. Low capital costs also ensure that innovations and new technologies can diffuse quickly through the industry. Another advantage of road transport is the high relative speed of vehicles, the major constraint being government-imposed speed limits. One of its most important attributes is the flexibility of route choice, once a network of roads is provided. Road transport has the unique opportunity of providing door to door service for both passengers and freight. These multiple advantages have made cars and trucks the modes of choice for a great number of trip purposes, and have led to their market dominance for short distance trips.

3. Water Transport Water transport is the process of transport a watercraft, such as a barge, boat, ship or sailboat, makes over a body of water, such as a sea, ocean, lake, canal or river. The need for buoyancy unites watercraft, and makes the hull a dominant aspect of its construction, maintenance and appearance. Maritime transportation, similar to land and air modes, operates on its own space, which is at the same time geographical by its physical attributes, strategic by its control and commercial by its usage. While geographical considerations tend to be constant in time, strategic and especially commercial considerations are much more dynamic. The physiography of maritime transportation is composed of two major elements, which are rivers and oceans. Although they are connected, each represents a specific domain of maritime circulation. The notion of maritime transportation rests on the existence of regular itineraries, better known as maritime routes. An important feature of the economics of shipping relates to its capital costs, which requires financing. Because of their size, ships represent a significant capital outlay 3.5.3.4 Pipeline Transport Pipeline transport sends goods through a pipe, most commonly liquid and gases are sent, but pneumatic tubes can also send solid capsules using compressed air. For liquids/gases, any chemically stable liquid or gas can be sent through a pipeline. Short-distance systems exist for sewage, slurry, water and beer, while long-distance networks are used for petroleum and natural gas. Pipelines are an extremely important and extensive mode of land transport, although very rarely appreciated or recognized by the general public, mainly because they are buried underground or under the sea as in the case of gas pipelines. Two main products dominate pipeline traffic: oil and gas, although locally pipelines are significant for the transport of water, and in some rare cases for the shipment of dry bulk commodities, such as coal in the form of slurry. Pipelines are almost everywhere designed for a specific purpose only, to carry one commodity from a location to another. They are built largely with private capital and because the system has to be in place before any revenues are generated, represent a significant capital commitment. They are effective in transporting large quantities of products where no other feasible means of transport (usually water) is available. Pipeline routes tend to link isolated areas of production to major refining and manufacturing centers in the case of oil, or to major populated areas, as in the case of natural gas. 1.5.3.5 Air Transport A fixed-wing aircraft, commonly called airplane, is a heavier-than-air craft where movement of the air in relation to the wings is used to generate lift. The term is used to distinguish from rotary-wing aircraft, where the movement of the lift surfaces relative to the air generates lift. A gyroplane is both

fixed-wing and rotary-wing. Fixed-wing aircraft range from small trainers and recreational aircraft to large airliners and military cargo aircraft. Two things necessary for aircraft are air flow over the wings for lift and an area for landing. The majority of aircraft also need an airport with the infrastructure to receive maintenance, restocking, refueling and for the loading and unloading of crew, cargo and passengers. While the vast majority of aircraft land and take off on land, some are capable of take off and landing on ice, snow and calm water. Theoretically, air transport enjoys greater freedom of route choice than most other modes. Yet while it is true that the mode is less restricted than land transport to specific rights of way, it is nevertheless much more constrained than what might be supposed. Although the past century witnessed the dramatic growth of air transportation, important challenges cloud its future. First, the airline industry may not be financially healthy enough to pay for commercial advances that have benefited to the continuing growth of air transportation in the past. The development costs of new jetliners, even after adjusting for inflation, are unprecedented, partly because the latest generation of aircraft incorporate so many interfacing system. 3. Modal Comparison And Dominant Traffic Composition Competition between the modes has tended to produce a transport system that is segmented and un-integrated. Each mode has sought to exploit its own advantages in terms of cost, service, reliability and safety. Carriers try to retain business by maximizing the line-haul under their control. All the modes saw the other modes as competitors, and were viewed with suspicion and mistrust. The lack of integration between the modes was also accentuated by public policy that has frequently barred companies from owning firms in other modes, or has placed a mode under direct state monopoly control. Public policy is also playing a role through concerns over the dominant position of road transport in modal competition and the resultant concerns over congestion, safety and environmental degradation. 4. A Case Scenario for Kenya Improved transport infrastructure and services relating to road, rail, pipeline, inland waterways, ports , terminals and communication services. This strategic objective aims at improving the efficiency of the Northern Corridor transport infrastructure services consisting of road, rail, port, oil-pipeline and communications services. Transit costs in the Northern Corridor are still 2-3 times more than those of developed regions of the world. For the landlocked countries, 35-40% of the value of imported goods is attributed to transport costs . A significant proportion of these high transport costs are attributable to poor infrastructure. Similarly, the sub-region's exports are subjected to high transport costs prior to reaching the ports of exit. Reduction of transport costs would enhance export competitiveness; reduce the costs of imports and result in the overall competitiveness of the economies in the region.

Maritime ports facilities: Kenya has one sea port at Mombasa, which is operated by Kenya Ports Authority (KPA). The volume of traffic through the port of Mombasa is growing at a significant rate. For example, the installed capacity of the container terminal of the 250,000 TEUs has been surpassed and the port is handling 400,000 TEUs per annum. The growth in traffic requires expansion of the port facilities and services. In this regard, the ports authority has developed a 25-year master plan, which includes the construction of the 2 nd container terminal at the Mombasa port as well as the development of a second maritime port at Lamu. Road Transport: Accounts for more than 80 per cent of the total transit traffic flow within the Northern Corridor. The entire Northern Corridor road network covers approximately 7000 km across Kenya , Uganda , Rwanda , Burundi , and the DR Congo. About two thirds of the road network is paved, although the condition is generally poor due to inadequate resources for rehabilitation and maintenance. Overloaded freight vehicles and poor enforcement of axle load regulations further deteriorate the road network and reduce road life spans. Member states are being encouraged to promote the improvement, upgrading and expansion of the road network, to adopt common standards for road design, construction and maintenance, and a uniform road classification system. This calls for a harmonised road financing policy and management structures, as well as enforcement of common axle load limits and vehicle weights and dimensions. Railways : Only 20 per cent of the cargo transported along the Northern Corridor is by rail transport. The rail network essentially comprises a single line, overland rail track from Mombasa through Nairobi , Nakuru, Kisumu/Eldoret, Jinja, and Kampala and onto Kasese in western Uganda . Investment in rail infrastructure and equipment has been inadequate for more than a decade. The problems are further compounded by poor train operations and limited capacity or facilities for handling traffic, especially containers, at stations. As a result, the general condition of the railway network from Kenya to Uganda is old and in need of rehabilitation. Worse sections, such as the Kampala-Kasese line, have been closed. Inadequate investments have also diminished the efficiency and capacity of railway authorities to handle increased traffic volumes. The need for private sector investment in the railway network has become more apparent in order to improve services and to cope with increasing traffic volumes. The Kenya-Uganda railway has been jointly concessioned to the Rift Valley Railway Consortium effective from August 2006 . In addition there is need to develop the missing links within the Northern Corridor. A rail link from Kasese (Uganda) to Rwanda , the DR Congo and Burundi requires the participation of the private sector . At the same time there is need to develop links with Southern Sudan and Ethiopia. Pipeline: The oil pipeline, managed by the Kenya Pipeline Company, from the port of Mombasa to Nairobi (450 km) was commissioned in 1978 and later extended to Eldoret (325km) and Kisumu (121 km) in 1992. The existing pipeline from Mombasa to Eldoret and Kisumu has provided an important relatively cheaper and more efficient conveyance of fuel closer to the landlocked countries of the Northern Corridor. Therefore, most of their fuel imports are currently sourced from Eldoret and Kisumu. From the oil pipeline terminus, petroleum products are shipped by tanker truck. However, this transport

mode is deemed unsatisfactory due to environmental impact of trucks accidents, and oil spills. Besides, tanker trucks impose heavy damage on the road infrastructure. A viable alternative is extending the oil pipeline from Kenya to Uganda and eventually to Rwanda and beyond. The Governments of Kenya and Uganda have signed a Memorandum of Understanding to promote the extension of the Kenya Oil pipeline from Eldoret to Kampala . Inland waterways: Although not fully exploited, lake transport plays an important role in the movement of transit cargo. The ferry links on Lake Victoria between Port Bell/Jinja and Kisumu ( Kenya ) and Mwanza ( Tanzania ) form an integral part of the rail network in the Northern Corridor. There is adequate capacity, among the wagon ferries now operating on Lake Victoria, to carry more cargo than what is handled at the moment. Transit times on this alternative route to the all railway route to Uganda average 18-20 days. Air Transport: Air transport is managed by the Kenya Airports Authority (KAA), established in 1991. The primary source of revenue for KAA is landing and parking fees for aircraft. The KAA operates nine major airports nationwide, out of 156 public aerodromes. The government is contemplating privatization and public-private partnerships in key operations and services at the airport in order to increase efficiency and promote tourism. Ongoing capacity expansion infrastructure works to Nairobi JKIA Airport incorporate construction of a new terminal, additional parking and dual road network links. Communications: Development of communications infrastructure that supports the monitoring of traffic along the corridor is a key-contributing factor to the promotion of seamless transport of goods in the corridor. Radio communication systems for dissemination of traffic and weather related information along the corridor is important for all transport sub-sectors. The strategic objective on enhanced knowledge management and performance monitoring facilitates the identification of internal crosscutting themes such as capacity building and information management, as well as opportunities for creating linkages and strategic partnerships with others 5. Legal classification of carrier Some of the factors one should consider before choosing any of the class of the carriers include; volume and regularity of business, cash flow position of firm, availability of funds for investment and the historical background of the firm. They are classified as follows:1. Common carrier This is a person or company that transports goods or people for any person or company and that is responsible for any possible loss of the goods during transport. A common carrier offers its services to the general public under license or authority provided by a regulatory body. The regulatory body has usually been granted ministerial authority by the legislation which created it. The regulatory body may create, interpret, and enforce its regulations upon the common carrier (subject to judicial review) with independence and finality, as long as it acts within the bounds of the enabling legislation. A common carrier holds itself out to provide service to the general public without discrimination (to meet the needs

of the regulator's quasi judicial role of impartiality toward the public's interest) for the "public convenience and necessity". A common carrier must further demonstrate to the regulator that it is "fit, willing, and able" to provide those services for which it is granted authority. Common carriers typically transport persons or goods according to defined and published routes, time schedules, and rate tables upon the approval of regulators 2. Contract Carriers This is a carrier that transports goods for only a certain number of clients and that can refuse to transport goods for anyone else Private carriers. Although contract carriers must receive authorization, requirements are normally less restricted than common carrier operating authority. The basis for the contract is an agreement between a carrier and a shipper for a specified transportation service at a previously agreed cost. For example, the agreement may be a contract to move a single load or a number of loads over time. The business agreement becomes the basis for the contract carrier to receive a permit to transport the specified commodities. A special legal class of contract transportation is the owner-operator or independent trucker. The owner-operator typically owns a tractor and may own a trailer. on a regular or trip- by-trip basis for other legal forms of transportation such as contract carriers. 3.6.3 Private Carriers

This is a company that transports only their own goods. Usually the carrier's primary business is not transportation but rather something else. Private carriers are not for hire and are not subject to economic regulation. They must comply with regulations concerning hazardous goods movement, employee safety, vehicle safety, and other social regulations established by government agencies. The firm must own or lease the transport equipment and provide managerial direction regarding transportation operations. The primary distinction between private and for-hire carriage is that the transportation activity must be incidental to the primary business of the firm to qualify as private carriage.

2 Problems with Transportation Planning

Traffic and transportation in existing streets and highways and rail facilities no longer match the new demands created by recent population growth and new location patterns of economic activity. Besides increase in population, another problem is private automobiles overloading the network of highways and arterial streets. Movement of goods and products from one place to another is an obvious scenario in recent times. Carrying out a business not only signifies the sale of products within a particular boundary, but also beyond it. Sometimes, however, the process of transportation is also concerned with the movement of the products that are not really safe for the environment. In such a scenario, if any mishap occurs, the

entire ecosystem gets disturbed. Comprehensive Safety Analysis or CSA 2010 is a plan that has been designed to make sure that no such mishap occurs while transferring the materials from one place to another. Aiming towards reduction of crash issues, CSA 2010 formulates some guidelines to be followed by transportation professionals so that they could protect the goods as well as the environment from falling prey to any kind of unfortunate incident. 4. Application Case Study for Kenya Pipeline Company Ltd. Transport Planning for Reduction of Cost Transporting Fuel 4.1 Introduction East and Central African countries are net importers of Petroleum Products i.e. refined petroleum products and crude oil processed at the Kenya Petroleum Refinery Ltd. The regions petroleum products inlets are: The port of Mombasa, Kenya into the region through the Northern Transport Corridor The port of Dar -es-Salaam, Tanzania into the region through the Central Corridor The major concern for the region and especially the land-linked countries has been security of supply of petroleum products, fuel prices and capacity of product transportation/distribution infrastructure. 2. Fuel transportation/distribution network The transportation/distribution of petroleum products in the region is by a network of the Pipeline, Railway, Roads and Lake transport systems. The major fuel transportation routes are: Central Corridor Dar es Salaam via Dodoma to the four neighbouring countries of Burundi, Rwanda, Uganda and the DRC Northern Corridor Mombasa - Nairobi through Eldoret/Kisumu to Uganda, Rwanda, Eastern DRC, Burundi , Northern Tanzania and Southern Sudan. 4.3 Available transportation modes /routes The current petroleum products supply logistics is expected to change following the discovery of oil in Uganda and plans by the Government of Uganda to construct an inland refinery. Indications are that Uganda will be able to refine about 100,000 barrels of oil per day and the refinery output will meet the Uganda market demand, with surplus for export to the other countries in the region. The mode of transport combinations within these routes

|Country/Destination | |Kenya | | | |Tanzania | | | | | |Uganda, |Eastern DRC, |Burundi, |Rwanda | | | | | |

|BULK TRANSPORTATION

|RETAIL DISTRIBUTION

|Through the Port of Mombasa |Pipeline |Rail |Road | | |

|Road | | | |Road | | | | | | |Road | | | | | | | | | | | | | | | |

|Through the Port of Dar es salaam |Road and Rail |

|Through the Port of Mombasa to Northern Tanzania |Pipeline Kisumu - Lake/Road |Pipeline Eldoret Road |Through the Port of Mombasa |Pipeline Kisumu - Road |Pipeline Eldoret Road/Rail |Rail and Road from Mombasa | | |

|Through the Port of Dar es salaam |Rail and Road |Rail/Road and Lake Victoria |Rail/Road through Lake Tanganyika

4.4 Modalities for reducing fuel transportation costs Fuel transportation costs can be reduced through:1. Constructing/expanding pipelines in the region 2. Expanding the rail network within the region

3. Enhancing capacity and efficiency of the pipeline and rail network To ensure low tariffs and less losses 4. Developing good road infrastructure To reduce transportation cost (wear and tear of tracks) of distributing products from fuel depots to the market. To reduce on time taken to deliver products and increase tankers turnaround time. 5. Enhancing lake transportation infrastructure 6. Consideration of intermodal planning in oil handling and transportation projects. 7. Streamlining of regulatory responsibilities and rules across modes to promote seamless intermodal connectivity. 8. Collaboration between oil handling and transportation providers to ensure that the needs of the users for seamless service are realized and to avoid wasteful competition. 4.5 Challenges in use of Pipelines Pipelines are a cheap and safe mode of transporting fuel to the hinterland. Within the region, there exists only one refined petroleum products pipeline which traverses Kenya, Mombasa to Nairobi, Nakuru, Eldoret and Kisumu. The existing pipeline system transports over 90% of the products consumed in Kenya and about 80% of products consumed by the neighbouring countries of Uganda, Rwanda, Burundi, Northern Tanzania, Eastern DRC and Southern Sudan. The current pipeline system has experienced capacity constraints, which has led to oil marketers uplifting their products at Mombasa/Nairobi using the more costly road and rail options. 4.6 Challenges in the Rail Network Major challenges in the rail network include: The existing railway infrastructures is old and requires modernization to standard gauge Capacity constraints Rail wagons Management and governance issues, in particular the handling of the concession 4.7 Capacity Improvement projects Demand for fuel has risen following economic growth within region.

The increasing demand for petroleum products has led to increased demand for KPC services. KPC has experienced capacity constraints which is being addressed through a Capacity Enhancement Programme (CEP). The 1st phase of the CEP entailed construction of four additional pump stations along the Mombasa Nairobi section of the Pipeline system to augment the existing four pump station in order to increase the product flow rate from 440m3/hr to 880m3/hr. The project was commissioned in November 2008, however, due to technical problems, the pipeline achieved a flow rate of about 540m3/hr against the target of 880m3/hr. The technical hitches have been addressed and a parallel pumps test runs undertaken in August achieved a flow rate of 810m3/hr. KPC is optimistic that the target flow rate of 880m3/hr will be achieved. The second phase of the CEP will entail construction of a parallel pipeline from Nairobi - Eldoret . The projects objective is to enhance the supply of petroleum products for Western Kenya and the neighbouring countries to meet the growing demand. Nairobi Eldoret capacity enhancement has been phased as follows: Phase I (immediate) Construction of a 325km 14-inch diameter pipeline with mainline and booster pumps to achieve a flow rate of 394m3/hr. Phase 2 (Year 2022) Construction of additional mainline pumps and associated works to achieve a flow rate of 534m3/hr. Phase 3 (Year 2026) Construction of additional mainline pumps to achieve a flow rate of 709m3/hr.

4.8 Other projects under implementation 4.7.1 Kenya Uganda Petroleum Products Pipeline Extension The project is being developed jointly by the Government of Kenya, the Government of Uganda and Tamoil East Africa Limited as the project developer. Project Objectives: To enhance supply of petroleum products to the region with the least cost means of transporting the products; reduce road damage and carnage and provide an environmentally safe means of transporting petroleum products

Project Scope: Installation of about 340Km long 10-inch pipeline. Tie in to the existing Mombasa Eldoret pipeline system. Installation of Pumping station at Eldoret and an Intermediate booster pumping station. Construction of a Storage and loading terminal at West Kampala. Project Status: Project is at the Definitional Stage. Activities so far carried out are:The Heads of Agreement (HOA) between the two Government and Tamoil East Africa Limited (TEAL) was signed on 27th January 2007. Environmental Impact Assessment Study (EIA) was completed and licenses issued by NEMA Uganda and NEMA Kenya. Front End Engineering Design (FEED) done Land Acquisition for the Pipeline way leave on going Project documents have been finalized and are pending governments approval i.e. the Inter Governmental Agreement, the Shareholders Agreement, Memorandum and Articles of Association and Implementation Agreement. The Final Investment Decision has not been taken. 4.7.2 Kisumu Oil Jetty Project Objective: The objective of the project is to enhance transfer of petroleum products from the pipeline system to the lake vessels for transportation to Northern Tanzania and other neighbouring countries. Project Scope: Installation of three dedicated product lines from the tank farm at the depot to the oil jetty including necessary connections and associated works. 4.7.3 Future projects Parallel Pipeline to the Existing Mombasa Nairobi Project Objective: To enhance capacity for transportation of petroleum products from Mombasa to Nairobi. The parallel pipeline will augment the existing pipeline to meet future demand. The project is planned to commence (design study) in 2012/13 financial year.

Mombasa Truck Loading facility Project objective: To provide common user truck loading facilities in order to enhance distribution of petroleum products in the Coast Region.

Points of Presence: In the long term, the company intends to establish points of presence both internally and externally. Internal points of presence are Nanyuki, Lokichogio, Namanga, Mwanza, Lungalunga Taveta. External points of presence are Rwanda, Burundi and Tanzania. This may involve construction of storage and truck loading facilities 4.9 Conclusion on Kenya Pipeline Fuel Transportation Planning KPC will continue to plays a vital strategic role in the regional development through least cost supply and distribution of petroleum products. Successful development cost efficient fuel transportation network depends to a large extent on the commitment of the regional governments, international development agencies, and the private sector. The infrastructural planning process should be cognizant of the oil discovery in Uganda and its impact in the regions fuel supply logistics KPC will continue to plays a vital strategic role in the regional development through least cost supply and distribution of petroleum products. Successful development cost efficient fuel transportation network depends to a large extent on the commitment of the regional governments, international development agencies, and the private sector. The infrastructural planning process should be cognizant of the oil discovery in Uganda and its impact in the regions fuel supply logistics. 5.0 Conclusion Transport planning to reduce costs is a skill. Often transport planning is clouded by keeping your assets busy so you think they are making you money. The real challenge is to make your assets work effectively - perhaps dovetail with other modes in order to increase utilization and increase revenue/reduce costs. The purpose of transportation is to overcome space which is shaped by both human and physical constraints such as distance, political boundaries, time and topographies. The specific purpose of transportation is to fulfill a demand for mobility, since it can only exist if it moves something, be it people or goods. Any kind of movement must consider its geographical setting, and then choose an available form of transport based on cost, availability, and space. The transportation industry is changing so significantly in form and function that it easy to overlook the very important changes in the way it is organized and managed. Yet it is through different management practices that the spatial manifestations of the industry are expressed. It is perhaps easiest to see the changes in management through the lens of governance, where an industry that used to be largely managed and controlled by the state, has become increasingly controlled by the private sector.

The privatization of transport companies and infrastructures has been an important feature of the last decade, and is likely to continue further into the present century. However, there are still many questions about the role of the state in transportation. Under what conditions and in what circumstances should continued state control be maintained and even strengthened? What are the best models of public-private partnerships in the transport industry? The growing role of the private sector over an industry that is becoming global and multi-functional has necessitated a shift in management and ownership relationships that are still evolving.

References 1. Southern, A. (2006), Modern-day transport planners need to be both technically proficient and politically astute, Local Transport Today, No. 448, 27 July 2006. 2. Department for Communities and Local Government (2001), Planning Policy Guidance 13 3. Transport Planning Society (2006), Draft National Occupational Standards for Transport Planning, USA 4. U.S. Senate (2005), Senate Report 109-053 - Safe, Accountable, Flexible, and Efficient Transportation Equity Act OF 2005. 5. Clifford W,(2010) Last Exit: Privatization and Deregulation of the U.S. Transportation System, Washington, D.C.: Brookings Institution. 6. Bardi, E, John C and Robert N, (2006). Management of Transportation. Thomson South-Western. ISBN 0-324-31443. 7. Ch opra, Sunil and Peter M, (2007). Supply Chain Management. Pearson. ISBN 0-13-208608-5. 8. Tom K, Ag, (2010) Corporate Planning Manager, Kenya Pipeline Company, Regional Conference on the Northern Corridor Transport and Trade Facilitation.

Case Study On RPG Spencer Supply Chain Strategy for Agri Retail

MANTHAN The Retail Case Contest AMAETHON 2007 IIM AHMEDABAD Submitted by

Team Evanescence

Team Leader: Mitul Joshi mitul.j08@fms.edu 09911459121

Team Members: Anand Natarajan Mitul Joshi Viral Nagar

Faculty of Management Studies University of Delhi TABLE OF CONTENTS

TOPIC Pg No

EXECUTIVE SUMMARY 2 1. SWOT Analysis 3 4

2. Existing Supply Chain Model What We Are Doing 3. Behind Enemy Lines: What They are Doing 4. Suggested Improvements 8 10 6

5. A Blueprint Managing the Supply Chain 6. Conclusion REFERENCES APPENDIX 16 17 18

EXECUTIVE SUMMARY

RPG-Spencer is the undisputed leader in the upcoming and hugely promising agri-retail sector in India, especially in South India, where it enjoys a clear edge over its competitors. With constant improvement, their supply chain strategy has progressed from one replete with inefficiencies to one of direct sourcing from farmers, resulting in better realizations for both farmer and retailer.

In the wake of favorable FDI policies of the Government, corporate giants from both India and abroad are entering the fray with new, innovative strategies to gain a foothold in the market. RPG-Spencer faces the risk of its supply chain strategy being replicated, thus leading to erosion of its competitive advantage in the agri-retail sector.

This case analysis proposes a blueprint of the strategy that could be adopted by RPG-Spencer to achieve its twin goals: To retain its lead in the south Geographical expansion to Northern India

We begin with a SWOT analysis of the current supply chain model adopted by RPG-Spencer. The opportunities that emerge from the SWOT analysis are then leveraged to bring about further improvements in the supply chain through backward linkages into agri-input retail and investments in technology.

We then present our procurement and distribution strategy for the northern market, which requires the setting up of "agri-input retail stores" in the vicinity of farmlands, also doubling up as "warehousing centers", to house the farm produce till it is shipped to the consolidation centre.

We conclude by providing a Logistics Strategy for the northern market which will make use of thirdparty logistics to leverage the economies of scale resulting from such an arrangement.

1. SWOT ANALYSIS

We begin with a SWOT analysis of the RPG supply chain strategy which will help us evaluate the current state of its business and suggest new strategies for expansion.

2. EXISTING SUPPLY CHAIN MODEL WHAT WE ARE DOING One of the first players to enter the agri-retail sector, RPG started its operations in South India in the late 1990s. In the beginning, multiple intermediaries were involved in this food chain, causing inefficiencies in operation, leading to rising costs and lower profits. To address this problem and to gain a sustainable competitive advantage, they switched to a Direct Sourcing' strategy in which the agricultural produce was procured directly from farmers, resulting in better margins for both.

Today, RPG Spencer sources directly from about 150 farmers who are first provided with specifications regarding quality, quantity, size and delivery dates. It provides trucks to the farmers for transporting the produce from the farms to the consolidation center in time without wastage. Once the products reach the direct consolidation center they are sorted, graded, profiled and sent across to the retail outlets. Transportation cost is charged for the use of the trucks.

RPG operates in the South through a hub and spoke distribution model where a central node or a consolidation centre (hub) services the requirements of various closely located outlets (spokes). This

enables RPG to achieve significant cost advantages by the centralized purchasing of goods in huge quantities and distributing them through its own logistics infrastructure to the retail outlets.

This model has both benefits and drawbacks, some of which are discussed below:

3. BEHIND ENEMY LINES: WHAT THEY ARE DOING With companies like Reliance, Bharti, Mahindra, ITC, and a host of others showcasing interest in the agriculture sector, will their "farm to fork" plans of procurement and marketing succeed? We shall now take a look at the strategies employed by the various competitors in the agri-retail sector and the challenges faced by these companies. Broadly, companies entering the business are opting for three broad farming models - cultivation on company-owned land, farming on leased land and buying produce directly from large farmers or entering into procurement agreements from commission agents or 'aggregators' at mandis or large markets.

4. SUGGESTED IMPROVEMENTS An agile and adaptive supply chain is the key to success in retail. In the wake of big players entering the agri-retail market, with the requisite scale to build an efficient supply chain, RPG faces the threat of its successful supply chain strategy being replicated and its competitive advantage being eroded. Significant investments should be made by Spencer's to bring better efficiency into every element of the supply chain, right from post-harvest handling and packaging to distribution and logistics.

Our suggested supply chain strategy for RPG Spencer's involves the following:

1. Incentives for suppliers (farmers): In order to procure the best quality produce at the lowest possible prices, RPG should focus on maintaining strong and enduring partnerships with farmers, while looking to forge new alliances in order to get better bargaining power with them. They should look at backward linkages in all aspects of this value chain, from providing seeds, fertilizers and pesticides to helping farmers improve irrigation and avail the latest technologies to providing credit facilities, contract farming, processing, setting up cold chains and warehouses. They could consider alliances with agriinput suppliers like KRIBHCO and Mahindra & Mahindra. These corporate farming initiatives would go a long way towards creating a strong network of farmers servicing their retail outlets with good quality produce.

2. Investments in technology: RPG should take a lead in removing fat from the supply chain through investments in new technologies for managing the supply chain process. It should adopt the most advanced IT tools and applications in all supply chain functions, starting from demand forecasting, procurement, logistics, distribution and inventory management. The following specific technological improvements are suggested:

Using EDI for procurement:

A good EDI software enables the suppliers to download purchase orders along with store-to-store sales information relating to their products sold. On receiving information about the sales of various products, the suppliers can ship the required goods to the store's distribution centers. By planning its purchases well, Spencer's would be able to stock goods in right quantities and avoid overstocking at the stores. How EDI for Procurement works: The data extracted from a business process is usually transmitted over a Value Added Network (VAN) and delivers it to a "trading partner". Once the trading partner receives the information, the EDI systems will automatically translate the standardized EDI data and process it. EDI implementation is a totally automated interaction between the business applications, human intervention is not required. Benefits: Automates and streamlines the company's operations by simplifying order, acknowledgment and payment process

Maximizes its cash flow, reduce costs, cycle times and lead times and improves data accuracy Resulting labor savings and elimination of common errors can provide huge savings for Spencer.

Automation of distribution centers: The consolidation centers could be installed with fully automated conveyor belts. It could employ the technique of Cross-Docking which would enable the company to receive goods from farmers and dispatch them to the respective retail outlets in less than a day, thus minimizing inventory costs and handling costs. At the distribution centers, bar-codes on the goods entering the centers would be scanned, following which they would be sorted out according to orders received from the individual stores. The goods would then be sent to the other side of the center on fast-moving conveyor belts and loaded into the trucks heading to the stores, on a continual basis. This process would ensure that the inventory stays at the store for very little time, also enabling quick replenishment of goods at the stores.

Use of Voice-based systems to handle logistics at the consolidation centre: The proposed voicebased system would consist of portable Voice Recognition Talkman Terminals (VRTT) and a built-in speed spectrum radio module that would communicate over the company's wireless LAN. Each person responsible for order-picking would be provided with a microphone/ speaker handset, connected to the portable (VOF) system that could be worn on his/her waist belt. They would be guided by the voice to item locations in the distribution centers. The VOF system would verify quantities picked, and could respond to a variety of requests such as providing product details (type, price and barcode number) as well as repeating the previous pick. By installing the VOF system, RPG could eliminate mispicks and product labeling costs since the system would not require paper lists and labels to be affixed on the goods for locating them.

Work with farmers on a real time basis: The Internet could be used to determine product wise demand forecast and supply constraints if any to prevent overstocking and wastages at distribution centers. Store sales data could be analyzed by RPG, to determine, with reasonable accuracy, what goods to order, in what quantities to order, and also determine to quantities of goods to be dispatched to the various stores. The suppliers could plan out their delivery schedules well in advance, based on the prior information received about the products to be replenished in various distribution centers.

5. A BLUEPRINT - MANAGING THE SUPPLY CHAIN

The above section suggested techniques to improve the efficiency of the current supply chain strategy. In this section, we lay out a detailed blueprint of our suggested strategy to manage the supply chain along with specific ways to fight the competition. We look at various aspects of the agri-supply chain and how each is managed:

1.

Procurement and distribution:

We propose to continue with the "direct sourcing" model where in goods are procured directly from the farmers removing all the intermediaries along the value chain to get the best realization for both parties.

Since the company aims to expand in the northern market, where it presently does not have a considerable presence, the farmers in the states of northern India with whom it has entered into contracts cannot be immediately trusted to provide the best quality of produce with consistency. Hence, RPG should invest in setting up "agri-input retail stores" in the vicinity of the farms. Each store would provide help to improve the quality of agriculture in the area through 24x7 support by a team of qualified agronomists. They would provide a complete range of good quality, multi-brand agri-inputs, access to modern retail banking and farm credit at reasonable rates of interest, farm produce buyback opportunities and access to new markets. This would ensure that the company always gets consistently good quality produce from the farmers.

Each such "retail store" would also have an attached warehouse. The farmers living in the vicinity would bring their produce to these retail stores and drop them in the warehouse. Thus, in this new model, the produce, instead of being shipped to the consolidation centre would just be dropped here in the warehouse. The company would then be responsible for shipping this produce to the consolidation centre and finally to the retail outlets. The new model still follows the Hub and Spoke distribution model in which the consolidation centre (hub) services the retail outlets (spoke). Initially, we propose to target the states of Punjab, Haryana and Himachal Pradesh. Each such "Retail store" would operate in a catchment of about 20 km radius, so that farmers can arrange for their own transport to get to the store.

The model above would be followed in the northern part of the country where the company is looking to expand its operations. However, the well established procurement and distribution model followed in the south would continue to operate unchanged.

2.

Logistics Management:

With the influx of deep-pocketed industry giants into agri-retail, it has become necessary for RPG to identify a strategy which would help them retain the edge. Spencer is aiming to do the same by looking at geographical expansion into North India market. However, its only presence in the North is in the form of retail stores in Delhi, Ghaziabad, Noida, Faridabad and Gurgaon. For expansion in the North, Spencer's will have to overcome the following hurdles:

etc.

Lack of knowledge about the area in terms of logistical requirements, distribution of farmlands,

No strategic partnerships/alliances with the farmers

The above problems could be addressed in a cost-effective manner through third-party logistics (3PL).

A 3PL provider is regarded as an integrated logistics service provider. IT-related activities for controlling goods flow such as order processing, and inventory management, among others are included in the function of the 3PL provider. The 3PL provider can make various advises to answer customers' requirements concerned with marketing strategy, information system configuration, cooperative transportation, etc.

For the southern market, we propose to build a robust cold chain infrastructure in order to minimize wastages and maximize supply chain efficiency. Investments in real estate and cold chain infrastructure are capital intensive and will yield slow returns. However, 100 percent foreign direct investment (FDI) is allowed in this sector. The Infrastructure consists of items such as Coolers, Warehouses, Refrigerated Trucks, and Carriers. Power disruptions and high petrol and diesel prices make efficient operation of the

facilities very expensive. This is the right time for building cold chain infrastructure and giving it for rentals.

6. CONCLUSION

A SWOT analysis of the RPG supply chain strategy has helped us evaluate the current state of its business and suggest new strategies for expansion. Keeping in mind various competitors' strategies, we suggest improvements such as incentives for farmers and investments in technology.

The future strategy in the north will consist of setting up agri-retail stores in villages that it sources food grains from, which would provide agri-inputs to the farmer and will be monitored by a team of agronomists. This would provide multifarious benefits to both farmers and RPG.

In the south, we propose continuing with the well established procurement and distribution model followed unchanged, and also developing robust cold chain infrastructure to minimize wastages.

REFERENCES http://www.isb.edu/faculty/Working_Papers_pdfs/Can_India_be_the_Food_Basket_for_the_W orld.pdf http://www.consultavalon.com/perspe/agribiz.pdf http://www.itcportal.com/newsroom/press5dec06.htm http://www.businessworld.in/issue/press_rel01.asp http://in.biz.yahoo.com/060728/203/6694c.html http://www.tezu.ernet.in/dba/Faculty/mrinmoy/retail.htm http://www.apo-tokyo.org/projreps/projrep0002.htm

Vishwanadham, N: Food and Retail Chains in India - ISAS working paper No. 15 Date: 6 October 2006, National University of Singapore

Jena, Anil Kumar & Gupta, Sunil Kumar: E-Agribusiness, Spice, Vol. 1, No. 9, August 2005, PGPABM, Manage Lokesha. H., Lalith Achoth. Hugar. L. B., Amrutha, C. P. And Deshmanya. J. B.: Agri-Business Sector in India SWOT Analysis: Agricultural Marketing, July A September, 2002 Vol. XLV, No. 2, I. S. S. N. 0002 1555, Directorate of Marketing & Inspection Ministry of Agriculture (Department of Agriculture & Co-operation), Government of India Porter, Michael E.: Competitive Strategy- Techniques for Analyzing Industries and Competitors Case Studies in Supply Chain Management, Volume 1: ICFAI Center for Management Research

APPENDIX EXHIBIT I: Agri-Hubs North India Various agri hubs in the northern part of the country have been identified as follows:

Source: http://www.rbh.in/Home/clusters/Agri%20Clusters.pdf EXHIBIT II: Third Party Logistics

Usage of third party logistics in various areasBusiness Logistics and Supply Chain Management

I MINI PROJECT

Consider any organization known to you and outline the following

1. Vision, Mission, Goals of the organization 2. Supply Chain Strategy ( include competitive strategy and supply strategy) 3. Role of logistics in the SCM 4. Current Practices in managing inbound logistics 5. Current practices in managing outbound logistics 5. Areas of Improvement 6. Suggestions

Your Paper should include the following areas : 1. Logistics positioning 2. Customer service level 3. Channel Structure 4. Inventory Management 5. Transportation Management 5. Warehousing and material handling 6. Packaging 7. Logistical organization 8. Information System 9. Cost Control Practices 10. Development of Balanced score card for performance management of Sourcing manager

II

Assignment (Approx 10 Pages)

Value added by logistics to Supply Chain

III)

Test

Answer the following Questions 1. Compare and contrast domestic and global logistic operations 2. Describe relationships among procurement, manufacturing and customer accommodation in integrated logistics system. 3. What is the difference between consumer and industrial packaging .Describe different packaging types and materials used in the industry? How containerization is helping logistics operations? 4. In lieu of MCQ Describe different modes of transportations identifying the most significant characteristics of each

IV Case Study : Please study the details given below and answer the questions given at the end of the case

Zwick Electrical

Did the consultants come up with anything? asked Wilton Zwick. His brother, Carlton, nodded affirmatively. There are several possible alternatives. In terms of alliances it looks like they have identified two potential partners. Here, take a look for yourself. Wilton quickly scanned the reports front page. Hmm, Asea Brown Boveri and Siemens? Carlton and Wilton Zwick are, respectively, president and vice president of Zwick Electrical Incorporated (ZEI), a privately held company. Carlton joined ZEI in 1983 after earning a marketing degree. After receiving an engineering degree in 1975 Wilton spent 4 years with an electrical-products division of a major firm in Pittsburgh. He then joined ZEI in late 1989.

ZEI began operations in 1952 when Gunther Zwick, Carlton and Wiltons father, opened for business in Cleveland, Ohio. In the early years ZEIs product line was limited to electric motors and parts. The company gradually expanded its product line to include power transformers, high-voltage switchgear, and metering devices. By the mid-1960s ZEI had added production facilities in Cincinnati, Ohio, and Louisville, Kentucky. In 1978 gaps in ZEIs product line prompted the elder Zwick to purchase EL Transmission and Power (ELTP), a Memphis-based power transmission equipment company. Although ELTPs Memphis headquarters was closed, ZEI retained the Memphis distribution center and engineering department. ELTPs manufacturing plants in Chattanooga (Tennessee), Springfield (Missouri), and Shreveport (Louisiana) continued operations under ZEI. During the 1980s no further acquisitions were made. The plants in Cincinnati and Chattanooga were significantly expanded to handle ZEIs increasing business. Minor renovations were made in the Cleveland and Springfield facilities. Although business took a sharp downturn in the early 1990s ZEI management remained optimistic about the future. At Wiltons urging the engineering staffs were increased and plans were made to build a modern facility in the Southeast. In 1994 ZEI opened a new plant and distribution center in Greenville, South Carolina. This plant specializes in power transformers and high-voltage switchgear. In 1998 Gunther retired from ZEI. At that time he appointed Carlton as president of ZEI and Wilton as executive vice president. In reality Carlton is in charge of everything except product design. Wilton oversees product design and consequently works closely with the engineering and production departments. Following the downturn of the early 1990s ZEI enjoyed modest growth until 1999. The American power business, plagued by overcapacity, had stagnated. It became obvious that ZEIs Cleveland, Louisville, and Shreveport plants were seriously outdated. A decision was made in 2000 to renovate Shreveport and close production facilities in Cleveland and Louisville. This decision was particularly difficult for Carlton to accept. Carlton believed that ZEI could not expect loyalty from its workers unless it demonstrated concern for their welfare in difficult times. Wilton, although sympathetic to the plight of the workers, had been watching European and Japanese firms erode Americans market share in the power business. He felt that ZEI must remain competitive. If that meant closing noncompetitive facilities, then so be it. At this time the Zwick brothers also decided ZEI needed to aggressively pursue international markets. ZEI had sporadically exported in the pastbut only if a foreign customer initiated the contact. Electing for a more proactive posture, ZEI entered into an agreement with an export management company, Overseas Venture Management (OVM). OVM acts primarily as a manufacturers representative for ZEI in Western Europe. OVM receives a commission on each sale of ZEI product plus a fixed rate for representing ZEI at European

trade fairs. In 1998, the first year of the agreement, OVM sales represented less than one-half of 1 percent of total ZEI sales. That figure improved to slightly more than 1 percent in 1999. The Zwick brothers were generally pleased with OVMs performance. Although OVM sales in 2000 and 2001 represented less than 3 percent of total ZEI sales, trade fair appearances had generated considerable interest in ZEIs line of power semiconductors (electronic switching devices for high-voltage transmission). In fact, power semiconductors represented 70 percent of ZEIs European sales in 2000 and 2001. In particular, the rebuilding of Eastern Europe offered a potentially lucrative power semiconductor market. OVM sales were expected to increase modestly in 2002. Future growth in Europe was threatened, however, by stagnant economies and the fear of Fortress Europe. In 1987 European leaders agreed, through the Single European Act, to create a single, integrated market. This borderless Europe opened protected markets, creating a large regional trading bloc. Some business analysts predicted that this trading bloc would erect trade barriers designed to protect European-domiciled companies, thus leading to fortress mentality. Troubled by such predictions abroad and eroding market share at home, ZEI sought the advice of an international consulting firm. In initial discussions with the consultants the Zwick brothers had underscored three primary objectives:

1. Maintain ZEIs access to international markets as regional trading blocs develop. The Zwick brothers believe several of their products could attain substantial success abroad. 2. Increase international sales of ZEI products at a greater pace than OVM had attained. ZEI would like international sales to be 15 to 20 percent of company sales by 2006. The Zwick brothers doubt a manufacturers representative will be able to produce that level of sales. 3. Find complementary product lines from overseas suppliers to add to ZEIs U.S. product line. Product development costs hamper ZEIs efforts to develop complete product lines inhouse. Evidence suggests that ZEI is losing business to domestic and foreign competitors that offer more complete product lines. Many of those competitors enjoy substantially lower product development and production costs by developing and sourcing products from lower cost countries.

As the dialogue with ZEI continued, the consultants identified several areas of concern. First, despite ZEIs nearly 5-year relationship with OVM, the level of international business savvy within ZEI was quite low. Second, neither Zwick brother indicated any desire to relocate outside the United States. Third, the Zwick brothers were so accustomed to making their own decisions the consultants wondered how effectively they would work with an outside organization. Of course, the consultants also realized that foreign competition and sliding profits had convinced many American companies to reexamine the way they did business.

With that in mind, the consulting firm has suggested that ZEI consider, as one alternative, entering into a business relationship with either Asea Brown Boveri (ABB) or Seimens AG.

ABB

Id rather be roughly right and fast than exactly right and slow. The cost of delay is greater than the cost of an occasional mistake. Percy Barnevik, president and chief executive, ABB

Guided by that kind of thinking, Percy Barnevik, in 1992, fashioned a merger between two prominent European firms: Asea AB (Sweden) and BBC Brown Boveri Ltd. (Switzerland). In typical Barnevik style the merger was quietly initiated and quickly concluded, deftly avoiding possible delays from government, union, or shareholder opposition. The result of this SwedishSwiss merger, ABB, found itself with 180,000 employees and annual sales of about $18 billion. Effective October 1, 1993, ABB reorganized into four business segments (power plants, power transmission and distribution, industrial and building systems, and transportation) and three economic regions (Europe, the Americas, and Asia Pacific). Each business segment is composed of distinct business areas (BAs). Under the new alignment ABB has 50 BAs. The bulk of its revenues is still generated by the power-related business segments. Chief competitorsGE (U.S.), Siemens (Germany), Hitachi and Mitsubishi (Japan)have all diversified away from the power industry.

History. Prior to the merger, Asea AB and BBC Brown Boveri Ltd. were widely regarded as national industrial treasures in their respective countries. Each firm had earned that respect by developing and supplying products for nearly a century. Brown Boveri, primarily a manufacturer of heavy-duty transformers and generators, had large customer bases in Germany and the United States. But the engineer-led firm had been experiencing declining profits since the late 1970s. An analysts report identified empire-building subsidiaries as a major problem. Lacking a clear corporate strategy, many Brown Boveri subsidiaries independently engaged in R&D, marketing, and production. Such duplicative costs contributed to dividend-free years in 1986 and 1987.

In the late 1970s Asea AB was slowly growing, a dominant force in the Swedish electrical engineering and power plant market. That changed in 1980. Barnevik took over the firm and began to behave in a very un-Swedish manner. First order of business? Slash overhead at Asea headquarters. In the first 100 days, Barnevik reduced Aseas main office staff from 1,700 to 200. (This was to become a Barnevik trademark. In subsequent acquisitions the first order of business was always the severe reduction of headquarters personnel.) Responsibility was shifted downward as numerous profit centers, with specific target goals, were established. Throughout the 1980s other Scandinavian firms were acquired (Stromberg, Finland; Flotech, Denmark; Elektrisk Bureau, Norway) in an effort to widen Aseas electromechanical product line as well as its distribution channels. Further expansion took Asea beyond Europe to Asia and North America. In 8 years Barnevik tripled Aseas sales and increased earnings fivefold. While on this acquisition/growth binge Barnevik was contemplating the future European landscape. A borderless Europe would open protected markets. For Asea that meant an opportunity to wrest part of the power plant market away from domestic firms. This realization eventually led Barnevik to approach Brown Boveri. The Asea/Brown Boveri merger, domiciled in Zurich, Switzerland, became official January 5, 1993. After the merger Barnevik rationalized or streamlined the ABB workforce and then launched a series of acquisitions. In 1994 ABB entered a joint venture with Italys state-owned Finmeccanica and completed a buyout of Westinghouse Electric Corporations U.S. power transmission and distribution business. The following year saw ABB (1) assume control of Combustion Engineering, an American boiler and nuclear plant builder; (2) move into Eastern Europe with a majority position in Zamech, a Polish turbine maker; and (3) establish links with an electrical-equipment supplier, Bergmann-Borsig. In 1993 ABB acquired Bergmann-Borsig and continued its aggressive investment in Central and Eastern Europe by entering into approximately 30 joint ventures. By 2000, ABB held roughly 1,300 subsidiaries spread across Europe, Asia, North America, Latin America, Africa, Australia, and New Zealand. In 2001, it was reported that ABB would expand further into Asia and Eastern Europe.

ABB: Organization. To control this far-flung network ABB employs a matrix organization, divided by products and geography. The four major product lines are subdivided into BAs. Each BA manager is responsible for setting a global strategy for that product line. That responsibility includes setting and monitoring factory cost and quality standards, allocating export markets among the BA factories, and personnel management and development. Within each of the three primary geographical regions ABB is divided by country. Country managers deal with national and local governments, unions, laws, and regulations. They operate traditional, national companies. But the country managers also work across BAs by coordinating all operations within their assigned country. It is this latter role that links business segments and attempts to create an efficient distribution and service network across product lines.

At a still lower level is the company manager. This person is responsible for a single facility and its products. The company manager reports to two bosses: the BA manager and the country manager. This matrix organization creates what Barnevik prefers to call a multidomestic rather than a multinational company. It is, in Barneviks opinion, the multidomestic firm that can truly think global, act local. Company managers are usually nationals of the country in which they are employed. Naturally they are familiar with the local customs and marketplace, but they are also forced to think globally because of the BA managers global strategy (i.e., export markets) for the domestically produced goods. As a consequence, ABB plants typically produce a variety of products for the local market and a narrower line for export. The narrower line reflects the particular specialty or core product of the plant. Barnevik notes that this strategy forces a plant to be flexible to meet specific local needs while still producing internationally competitive products for export. For the matrix system to work Barnevik tries to overinform. Information is continually disseminated in face-to-face meetings between executive committee members and business area, country, and company managers. But it is Abacus, ABBs management information system, that ties the highly decentralized company together. Abacus provides centralized reporting to ABBs 1,300 subsidiaries and 5,000-plus profit centers. In addition to traditional financial performance measures Barnevik reviews aggregated and disaggregated results by business segments, country, and companies. It is within this latter information that Barnevik discerns trends and problems. With little fanfare, the situation is discussed with appropriate ABB personnel. A course of action is quickly planned and implemented.

Siemens AG

Siemens, a German company, has 15 business segments: power generation, power transmission and distribution, industrial and building systems, drives and standard products, automation, private communication systems, public communication networks, defense electronics, automotive systems, semiconductors, medical engineering, passive components and electron tubes, transportation systems, audio and video systems, and electromechanical components. In addition, a 1990 merger with Nixdorf resulted in the formation of Siemens Nixdorf Informationssysteme AG (SNI). SNI, the second largest computer company in Europe after IBM, is a separate legal entity.

History. In 1847 Werner Siemens and J. G. Halske formed Siemens & Halske (S&H) to manufacture and install telegraphic systems. The company was successful and within 10 years found itself constructing an extensive telegraph system in Russia as well as developing the first successful deep-sea telegraphic cable.

Spurred by such accomplishments S&H diversified into other products. By the latter 1800s S&H had become involved in telephones, electrical lighting, x-ray tubes, and power-generating equipment. Growth continued into the 1900s until the outbreak of World War I. With civilian demand dampened, S&H sought military contracts. During the war the company supplied the German military with communication devices, explosives, rifle components, and aircraft engines. Defeat of the German state carried a penalty for S&H. Its assets in England and Russia were seized by the respective governments. Despite such losses S&H continued operations, concentrating on electrical manufacturing. In 1923 S&H began producing radio receivers. Soon thereafter the firm once again moved into international markets, setting up an electrical subsidiary in Japan and developing hydro projects in Ireland and the Soviet Union. War again interrupted S&Hs business. During World War II S&H devoted the majority of its manufacturing capacity to military orders. The companys electrical skills were utilized in the development of an automatic-pilot system for airplanes and the German V-2 rocket. As a result, S&H factories were frequently targeted for Allied bombing raids. After the Soviet army gained control of Berlin in 1945, S&Hs corporate headquarters was destroyed. Following World War II S&H relocated its headquarters to Munich. By the early 1950s S&H was again producing a variety of products for consumer electronics, railroad, medical, telephone, and power-generating equipment markets. S&H established an American subsidiary in 1954. By the end of the 1950s S&H had broadened into data processing and nuclear power. In 1966 S&H underwent a major reorganization. All subsidiaries were brought under the direct control of the parent company. In turn, the parent company reincorporated and emerged with a new name, Siemens AG. By the 1970s Siemens had once again become a respected international competitor in electrical manufacturing. Siemens displaced Westinghouse as the worlds number-two electrical manufacturer. This pitted Siemens against number-one General Electric in numerous markets in the 1970s through the 1990s. Despite a series of acquisitions and mergers in the 1980s Siemens remains a Eurocentered organization. Sales in 1999 show that 75 percent of Siemens sales occur in Europe with 46 percent of that amount in Germany alone.

Siemens: Organization. From 1847 until 1981 a Siemens family member controlled day-to-day operations at Siemens. That changed with the retirement of Peter von Siemens in 1981. Since that time the company has been directed by non-Siemens family members. Siemens corporate structure is based on the concept of decentralized responsibility. This philosophy is supported by a flat hierarchy and, consequently, short decision-making paths.

Management believes that decentralized organization guarantees maximum market responsiveness in todays competitive environment. The corporate structure is characterized by three primary divisions: groups, regional units, and corporate divisions and centralized services. The groups comprise the previously mentioned 15 business segments as well as several legally independent business entities (e.g., SNI). Headed by a group president, who has worldwide responsibility for their business activity, each group is intended to act as a stand-alone business, resembling an independent company. The role of a regional unit is to implement the business goals of a group. The regional unit must encourage maximum local entrepreneurial responsibility while ensuring that local units understand each groups overall strategy. In most cases the regional unit deals directly with local subsidiaries. The utilization of corporate divisions and centralized services is intended to separate staff functions from service units. Within the corporate divisions there are five main corporate departments: finance, research and development, human resources, production and logistics, and planning and development. These departments provide general guidelines and serve as a coordinating function in their particular area. This coordinating function supports each groups business while keeping Siemens overall strategic goals in mind. Having finished the consultants report, Wilton Zwick leaned back in his chair and wondered about ZEIs future. He realized that ZEIs decision would, in large measure, determine the companys future. A misstep at this juncture might be disastrous. A correct decision, however, could launch a new era of growth and prosperity.

Questions

1. answer.

At what stage of global operations are ZEI, ABB, and Siemens? Justify your

2. Beyond a simple sales perspective, why might ZEI want to consider greater international activity? 3. offer? 4. Alliances with ABB and Siemens are only one alternative contained in the consultants report. What other alternatives do you think the report might contain? 5. What course of action do you think ZEI should pursue? Why? From a ZEI perspective what advantages and disadvantages do ABB and Siemens

[pic] [pic] Discussion Notes

Teaching Notes: Finntrack

Strategy: Analysis and Practice 2005 McGraw-Hill Education Europe

Index Workshop Case Analysis Debate Case Questions How to Use Your Workshop Resources Disclaimer Learning Objectives Multinational Corporations Introduction to Retailing and IKEA Introduction to IKEA Corporate Strategy Business Analysis Business Drivers Quantitative Methods Strategic Business Analysis Organisation Organisational Culture Financial Statements - The System Financial Statements - Analysis Financial Ratios

Competitive Position: Competitive Advantag Strategic Planning Competition What is Sustainable Competitive Adva Sustainable Competitive Advantage Competitive Strategies

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Index Strategic Capability: Core Competence Corporate Capabilities Core Competency Strategic Intent Innovation Theory of Constraints Value Chain IKEA Modified Value Chain Six Sigma Global Strategies Process Analysis for Strategic Decisions Game Theory Competitive Strategy: the Analysis of Strategic Position Lecture Competitive Strategy: the Analysis of Strategic Capability Lecture Global Strategies and International Advantage Lecture Process Analysis for Strategic Decisions Lecture Click on Image

Workshop This workshop series is designed to compliment Teaching and Learning Strategies for undergraduate, postgraduate and executive level Strategic Management and related programmes and courses using the case studies featured in the text below. The overall aim is to support the learning contents offered in the relevant chapters of the book whilst expanding participants knowledge and skills base required to understand, review and analyse the decisions taken during the companys strategy development and implementation processes. Strategy Analysis and Practice John McGee, Warwick Business School Howard Thomas, Warwick Business School David Wilson, Warwick Business School

Case Analysis A case study is a particular method of qualitative research. Rather than using large samples and following a rigid protocol to examine a limited number of variables, case study methods involve an indepth, longitudinal examination of a single instance or event: a case. They provide a systematic way of looking at events, collecting data, analyzing information, and reporting the results. As a result the researcher may gain a sharpened understanding of why the instance happened as it did, and what might become important to look at more extensively in future research.

Click on Image Source: doyleresearch

Case Analysis Case studies lend themselves especially to generating (rather than testing ) hypotheses. The scope and relevance of case studies Types of case study Illustrative case studies Exploratory case studies Critical instance case studies Program implementation case studies Program effects case studies Cumulative case studies Business school case studies Medical case studies History of the case study Conclusions Notable case studies References See also External links Click on Image Source: Inter IKEA Systems B.V. 2002-2006

Workshop Debate Workshop discussion topics have been divided into six parts according to the relevant chapters of the book involved in the case study: 1. 2. 3. 4. 5. 6. Introduction Business Analysis Competitive Position: Competitive Advantage Strategic Capability: Core Competence Global Strategies Strategic Decision Making

You should ensure that you have understood the contents of chapters 6, 7, 11 and 13 prior to attending any of the above debates. Also see: How to Use Your Workshop Resources Learning Objectives Learning from Case Studies: A Short Guide for Students

Case Questions Please Note: At your instructors discretion the indicative questions below and elsewhere in this resource may be varied or deemed unnecessary for teaching and learning purposes for some courses or modules. 1. Using the information given in the Case Study and this resource, describe the Elements of IKEAs Organisational Culture. 2. How has the Organisational Culture shaped IKEAs Business Model? 3. Measure the value of IKEAs Organisational Culture.

Also see Learning Using Case Studies for further information Also see A Model for Case Analysis and Problem Solving

How to Use Your Workshop Resources Viewing You will need either MS PowerPoint program or PowerPoint Viewer installed on your computer. The latter may be downloaded free from Microsoft website here. Navigation The Learning Contents (Literature Reviews) are linked to a relevant public domain on the Internet. Most, if not all pictures/images are clickable, i.e. linked to its source which provides further information on the topic or the copyright holder. If your version of PowerPoint does not show navigation buttons on the slide, right click on the screen and select your destination from the dialogue box. Alternatively use the small arrowheads, indicating previous and next.

Disclaimer This information is provided with the understanding that the authors and publishers do not assume any legal responsibility for the completeness or accuracy of the contents or any opinions or views expressed on these pages or linked destination sources. It is the nature of the media (Internet) that some of the pages may not always be available due to broken or dead links, withdrawals, etc. Whilst the publishers will be pleased to take any appropriate corrective action, for example, by replacing or removing the sources when possible, they unable to assume any legal responsibility for unavailability of any third party material for whatever reason beyond their direct control.

Learning Objectives The main objective of the workshops is to evaluate IKEAs corporate strategic planning process and outcomes and their impact on the companys business level operations. Participants will have an opportunity of developing and enhancing their strategic thinking and internet research skills analytical and critical thinking skills by reviewing the factors that influenced corporate centre's decisions on the business

Multinational Corporations A multinational corporation (MNC) or multinational enterprise (MNE) or transnational corporation (TNC) is a corporation/enterprise that manages production establishments or delivers services in at least two countries. Critiques Examples In fiction Furnishings International Furnishing Market

See also

Annual Report on the Guideli The 2005 edition includes a special focus on corporate responsibility in the developing world

Fostering Growth and Promoting a Responsible Market Economy - A G8 Declaration

Multinational Corporations Multinational corporations (MNC) are often divided into three broad groups: Horizontally integrated multinational corporations manage production establishments located in different countries to produce same or similar products. Vertically integrated multinational corporations manage production establishment in certain country/countries to produce products that serve as input to its production establishments in other country/countries. Diversified multinational corporations manage production establishments located in different countries that are neither horizontally or vertically integrated.

Multinational Corporations Multinationals have played an important role in globalization. Given their international reach and mobility, prospective countries, and sometimes regions within countries, must compete with each other to have MNCs locate their facilities (and subsequent tax revenue, employment, and economic activity) within. To compete, countries and regional political districts offer incentives to MNCs such as tax breaks, pledges of governmental assistance or improved infrastructure, or lax environmental and labour standards. This process of becoming more attractive to foreign investment can be characterized as a race to the bottom.

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Introduction to Retailing Retailing consists of the sale of goods/merchandise for personal or household consumption either from a fixed location such as a department store or kiosk, or away from a fixed location and related subordinated services.[1] In commerce, a retailer buys goods or products in large quantities from manufacturers or importers, either directly or through a wholesaler, and then sells individual items or small quantities to the general public or end user customers, usually in a shop, also called store. Retailers are at the end of the supply chain. Marketers see retailing as part of their overall distribution strategy.

Click on Images Source: Inter IKEA Systems B.V. 2002

Introduction to Retailing Shops and stores Retail pricing See also References

Click on Image. Larger Image Source: San Diego State University

Introduction to IKEA IKEA is a Swedish home furnishings retailer. It has 231 stores in 33 countries, most of them in Europe, the rest in the United States, Canada, Asia and Australia. More than 20 opened during 2005. IKEA is one of the few store chains to have locations both in Israel and in other Middle Eastern nations. IKEA is generally pronounced (IPA /i'ke.a/) but in many English-speaking regions, it is pronounced (IPA /a'ki:/) rhyming with the word "idea". The IKEA catalogue, containing about 12,000 products, is printed in 160 million copies (2006) worldwide, and distributed free of charge. [2] IKEA is famous for its affordable furniture which consumers are required to assemble for themselves.

Click on Image Source: en.wikipedia.org

Introduction to IKEA Overview Organization History Products Financial Community Impact Store Format Corporate structure Criticisms Diversity Design Reform IKEA Organisational Culture Popular Culture IKEA's Debut in Each Country Corporate Strategy See also Notes External links Data Directory

Click on Image Source: Inter IKEA Systems B.V. 1999 - 2006

Introduction to IKEA Ingvar Kamprad, believes that: "Most things still remain to be done - a glorious future! Time is your most important asset. Split your life into10minute units and sacrifice as few as possible to futurities" (Mclvor, Laurance, 1994: 38). The corporate culture of Ikea is built upon this philosophy all the way from design teams to suppliers and to the customer. A continuous strife for improvement in all areas of the value chain is an effective way to shape the industry to better fit Ikea's future strategies. Due to the uniqueness of Ikea's strategic positioning, being the largest competitor in its field, the firm has the advantage of setting the phase of the industry.

Click on Image Source: IKEA Deutschland

Introduction to IKEA Bureaucracy is fought at all levels in the organization. Kamprad believes that "simplicity and common sense should characterize planning and strategic direction" (Bartlett et Al, 1993: 78). In addition, the culture emphasizes efficiency and low cost which is not to be achieved on the expense of quality or service. Symbolic policies, such as only flying economy class and stay at economical hotels, employing young executives and sponsoring university programs have made cost part of corporate culture and has further inspired the influx of entrepreneurship into the organization. Source: Johan Olsson

Click on Image Source: www.csd.uwo.ca

Introduction to IKEA For instance, all design teams enjoy complete autonomy in their work, but are expected to design new appealing products regularly.

Click on Image Source: Themanager.org

Corporate Strategy Background Objectives International Strategy Case Study: How Ikea of Sweden Got to India

Financial Strategy Re. Case Study: How Ikea of Sweden Got to India

Marketing Advertising and Public Relations Management Strategy Re. Case Study: How Ikea of Sweden Got to India Click on Image. Larger Image Source: The M. Polo Group, 2002

Cultural Challenge Corporate and Social Responsibility Conclusions Re. Case Study: How Ikea of Sweden Got to India

Also see In India, its IKEA without the assembly

Ikea knockoffs a hit with India's elite Swedish chain has no stores there, but its furniture c

Corporate Strategy - Background Background The Values that Characterize IKEA Vision Objectives Mission (IKEA Concept)

Product Turnover Stores Store Openings 2005 - 2006 IKEA Catalogue IKEA Franchising Inter IKEA Systems B.V. 2003 - 2006 Click on Image Source: Inter IKEA Systems B.V. 1999 - 2004

Corporate Strategy - Objectives The Challenge IKEA want to increase the return on investment for the catalogue distribution, which is a substantial investment, and remain ahead of the competition in terms of business strategy. IKEA needs to ensure that catalogue distribution is targeted to reach people who are likely to be or become IKEA customers in terms of their demographic attributes and their likelihood to travel to the store. IKEA requires a solution to maximise their return on investment while expanding their appeal and maintaining their dominant market position. Specifically IKEAs key objectives are to: Identify target consumer types and geographic areas for distribution of catalogue Identify types and areas with poor sales potential Increase sales return on catalogue expenditure Develop business strategy Source: caci.co.uk

Corporate Strategy - International The Internationalization of IKEA Joint Ventures Alternative Entry Strategies Expansion by Franchising Supporting Organizational Structure Balance of Autonomy and Strategic Direction Click on Image. Larger Image. Source: Transcultural Synergy Ltd

Source: Global Perspectives: Case Study: How Ikea of Sweden Got to India

Corporate Strategy - International Joint Ventures Ikea will need to look at joint ventures and strategic alliances to become successful in the Indian market. Since the government requires that local business operations require 51% control by Indian nationals, Ikea's first step will be to find franchise owners. These in turn will have to form alliance and joint ventures to raise enough capital to develop the links necessary to form a successful entity. In high-risk markets (defined as those that are not similar to Scandinavian markets) Ikea's local market strategy is to develop supplier links in the host country. This is meant to reduce the strategic risk that may result from political legal and financial issues. By developing a relationship with local suppliers, the suppliers can provide valuable input into the opportunities and threats. Joint Ventures mean even more. They establish that the local owner/operators become an integral part of the stakeholder group. It is expected that they will therefore be more contentious of operations and therefore be more successful. Source: Global Perspectives: Case Study: How Ikea of Sweden Got to India

Corporate Strategy - Financial International Financial Market The Foreign Exchange Market Foreign Exchange Market Currency options and futures

Derivatives traders at the Chicago Board of Trade. Foreign Exchange Options by Wikipedia

Click on Image Source: Wikipedia

Main Text Source: Global Perspectives: Case Study: How Ikea of Sweden Got to India

Corporate Strategy - Financial Financial Strategy The cost of establishing a new store (approximately 22,000 items) is quite high when considering: Building acquisition, layout and design Sourcing franchise owners and human resources Establishing local supplier links Advertising and promotion of the new location (catalogues are expensive) Stocking the new store

The advantage of borrowing money locally is that the cost of borrowing will be protected from inflation and exchange rate fluctuations. Investment money taken from reserves of other operations may not carry any interest cost and therefore be a cheaper source of investment. In the case of India, if Ikea decides to franchise its operations there, the problem of financing the operation is taken care of through franchising fees and royalties. Return of profit/royalties to Ikea of Sweden could be facilitated in the transfer of product produced in India thus increasing the marginal return from everyone involved. Source: Global Perspectives: Case Study: How Ikea of Sweden Got to India

Corporate Strategy - Financial Financial Strategy Profits Profits in India should be maintained at a similar level to other countries. Since the per capita income of Indian peoples is substantially lower than other markets, product will have to be modified to lower price categories and volumes will have to increase to offset the difference. Except in the largest cities, operation costs should be lower than Western Europe. Labour costs are substantially lower in India, but the Ikea store concept requires little human resources, so cost reductions must rely on other overhead such as store, warehousing, power, taxes and advertising. Probably the most effective method for cost reduction is to source a higher percentage of goods form India. Even Scandinavian designs could be reproduced in India. Source: Global Perspectives: Case Study: How Ikea of Sweden Got to India

Corporate Strategy - Marketing Marketing Printable Fact Sheets: The IKEA catalogue How IKEA creates its low prices How IKEA is organised IKEA products are manufactured all over the world The right quality for IKEA products IKEA provides solutions for all domestic needs IKEA stores - everything under one roof Distribution - from supplier to store

Click on Image Source: Inter IKEA Systems B.V. 1999 - 2006

Click here to IKEA main menu

Corporate Strategy - Marketing Marketing Ikea does not have its own manufacturing facilities. Instead, it is using subcontracted manufacturers all over the world for supplies. All research and development activities are, however, centralized in Sweden. In order to maintain low cost, Ikea shoppers are Pro-sumers - half producers, and half consumers (Normann, 1993: 70). In other words, they have to assemble the products themselves. To facilitate shopping, Ikea provides catalogs, tape measures, shopping lists and pencils for writing notes and measurements. Car roof racks are available for purchase at cost and Ikea pick-up vans/mini trucks are available for rental (Economist, 1994: 101).

Click on Image Source: Inter IKEA Systems B.V. 1999 - 2006

Source: Johan Olsson, 1996

Corporate Strategy - Marketing Marketing Effective marketing through catalogues usually attracts the customer at first, what keeps customers coming back is good service. Ikea believes that a strong in-stock position in which the most popular style and design trends are correctly anticipated is crucial to keep satisfied customers. For that, Ikea depends on leading-edge technology. According to Ikea's logistics manager, "there are a lot of Just-In-Time concepts built into how we're trying to do business" (Chandler, 1993: 12). Ikea has developed its own global distribution network.

Click on Image Source: Inter IKEA Systems B.V. 1999 - 2006

Source: Johan Olsson, 1996

Corporate Strategy - Marketing Marketing By utilizing control points in the distribution cycle, the firm is able to insure timely deliver of products to retail stores all over the world. Internationally, these stores range in size from 20,000 to 30,000 square feet in Hong Kong and in Singapore to 500,000 square feet in Stockholm, Sweden. Ikea has over 1,800 suppliers located in over 50 different nations (Retail Business, 1995: 78). Ikea's, marketing manager believes that Consumer tastes are merging globally. Click on Image Source: Inter IKEA Systems B.V. 1999 - 2006

Source: Johan Olsson, 1996

Corporate Strategy - Marketing Marketing In one example, Ikea, which has been importing the "streamlined and contemporary Scandinavian style" to the United States since 1985, found at least one opportunity to export an American style to Europe, as Europeans are picking up on some American furnishing concepts. In order to respond to this new demand, Ikea now market "American style" furnishings for the European market.

Click on Image Source: 2006 by the US-China Business Council

Source: Johan Olsson, 1996

Corporate Strategy - Marketing Advertising and Public Relations Ikea's success is based on the relatively simple idea of keeping the cost between manufacturers and customers down. According to Ingvar Kamprad, the founder of Ikea; "To design a desk which may cost $1,000 is easy for a furniture designer, but to design a functional and good desk which shall cost $50 can only be done by the very best. Expensive solutions to all kinds of problems are often signs of mediocrity." (Chandler, 1993: 12) Costs are kept under control starting at the design level of the valueadded chain. Ikea also keeps costs down by packing items compactly in flat standardized embalages and stacking as much as possible to reduce storage space during and after distribution in the logistics process (Economist, 1994: 101). Source: Johan Olsson, 1996

Click on Image Source: Forbes

Corporate Strategy - Advertising and PR Advertising and Public Relations Online Promotion IKEA stand at HotelExpo 2006 exhibition IKEA catalog Furnishing Recipes for Hotels Big and Small Fixhult print ad for IKEA Uninterruptible Food Supply, IKEA print ad IKEA print ad Any table can become a smorgasbord IKEA promotion page Office of Decorum

Click on Image Source: 19952006 Art. Lebedev Studio

Corporate Strategy - Advertising and PR Advertising and Public Relations Four Neat Examples of Orderly Business Practices, an IKEA print ad IKEA B-to-B website B2B IKEA Do you know whats the Swedish for thanks?

Click on Image Source: Inter IKEA Systems B.V. 1999 - 2006

Corporate Strategy - Management IKEA Management Strategy IKEA is a very successful multinational corporation, which indicates that earlier discussed focused generic, or long-term strategy of cost leadership and product differentiation has served it well. IKEA approaches unknown, small, high risks markets by franchising. So this company actively expands in this field as well. IKEA has a lot of subsidiaries in many countries of the world. Franchisees have to carry basic items, but have the freedom to design the rest of the products.

Click on Image. Larger Image Source: Kanji Quality Culture Also see Management by Wikipedia.

Source: Global Perspectives: Case Study: How Ikea of Sweden Got to India

Corporate Strategy - Management Cost leadership as a part of the management process Differentiation strategy

Click on Image Source: Professional Management Review Africa

Corporate Strategy - Culture Cultural Challenge In international business, the culture is very important and we can consider one fundamental element " the culture shock" where there are several stages in the difference of the country culture: the honeymoon stage (we know that it is a new culture and we want to be there), the irritation-hostility stage, the gradual adjustment and the bi-culturalism, at this stage, the company gets a comfortable way in the settlement of the new culture.

Click on Image Source: Inter IKEA Systems B.V. 1999 - 2006

Source: Global Perspectives: Case Study: How Ikea of Sweden Got to India

Corporate Strategy - Culture Cultural Challenge But, few countries in the world have such an ancient and diverse culture as India. Indias culture has been enriched by successive waves of migration, which were absorbed into the Indian way of life. And, the diversity lies the continuity of Indian civilization and social structure from the very earliest times until the present day. Modern India presents a picture of unity in diversity to which history provides no parallel. Moreover, the Indian Council for Cultural Relations (ICCR) has been working to project Indian culture abroad and to bring to India the rich manifestations of international culture. It has thus become a major vehicle of international cultural exchange. Doing Business in India Source: 2000-2005 Executive Planet Inc.

Source: Global Perspectives: Case Study: How Ikea of Sweden Got to India

Corporate Strategy - Culture Cultural Challenge We can also focus on the Indians process of development, which has been accompanied by significant social changes and an increasing awareness about issues. This period has also seen the burgeoning of the voluntary movement in India. Today, the Government makes constant attempts to promote values like democracy and independence and India is working to have equal opportunities in all spheres of life. We cannot rule out the Indian Art, because it is also an Art of social, political and religious influences. It changed and evolved with the evolution of a civilization, which is full of remarkable innovation.

Click on Image Source: india-seminar.com

Source: Global Perspectives: Case Study: How Ikea of Sweden Got to India

Corporate Strategy - Culture Cultural Challenge Finally, we can make point on Indian religion, because it is another way of life and an entire part of Indian tradition. So in doing business with India, IKEA have to make attention with the culture and the communication (verbal and non-verbal) because the communication can be interpreted in different meanings and can provoke some mistakes, misunderstanding and also some troubles. So, the firm has to be careful with the context where it decides to set up its business.

Click on Image Source: 2003 international-business-center.com

Source: Global Perspectives: Case Study: How Ikea of Sweden Got to India

Corporate Strategy CSR Corporate and Social Responsibility Is it possible to make traditional business objectives and social and environmental responsibility work together for the benefit of the many? We believe they can work very well together. IKEA makes good business while being a good business. We realize that we are only at the beginning and we have a long way to go but we are proud of the results achieved so far. IKEA CSR activity involves three main areas: children, better living and environmental projects. Click on Image Source: Inter IKEA Systems B.V. 1999 - 2006

Corporate Strategy - CSR Corporate and Social Responsibility IKEA wants its products to have the minimum impact on the environment. And for these products to be manufactured in a socially responsible way. Low price but not at any price The IKEA code of conduct We use resources wisely Projects we support Read our brochure and report UK corporate and social responsibility Inter IKEA Systems B.V. 2003 - 2006

Corporate Strategy - CSR Corporate and Social Responsibility Special Report: Tackling Child Labour Child Labour Resource Guide

Source:

Corporate Strategy - Conclusions Conclusion, Appendices and References Together with innovative changes in the value chain, where consumers become Pro-sumers and suppliers are turned into consumers, the concept of marketing high quality products at low cost through a focused generic strategy, intended for the globally emerging middle-class has served Ikea well. Centralized control and product standardization is two necessary components of the firm's long-term strategy. In addition, the company has facilitated its international expansion through owned subsidiaries subsidiaries and franchises. Future localization pressures will force Ikea to change its global strategy in order to become more sensitive to local demands. Greater emphasis on joint ventures and strategic alliances represent possible vehicles to further build on Ikea's focus strategy. A new transnational oriented organizational structure would further provide the necessary infrastructure needed to support such vehicles towards true internationalization. This in turn would impact on the present homogenous Scandinavian culture and introduce new values, ideas and, perhaps, broaden Ikea's core competencies. Source: Global Perspectives: Case Study: How Ikea of Sweden Got to India

Business Analysis 1. 2. 3. 4. 5. Benefits of Business Analysis Roles of Business Analysts Business Process Improvement Goal of Business Analysts External Links

Also see Quantitative Method From Wikipedia, the free encyclopedia Larger Image Source: BizEd Click on Image

Business Drivers Also see

Association of Master Upholste

Furniture Industry Research As (FIRA) Kitchen Specialists Association (KSA) National Bed Federation (NBF) The association for British Furn (BFM) Economic Value Added

Larger Image Source: Metapraxis

Quantitative Methods Quants Handbook Lecture Lecture Lecture Lecture Lecture Lecture Lecture Lecture Lecture Click on Image Source: Brian C. McCarthy Ohio University

1: 2: 3: 4: 5: 6: 7: 8: 9:

Functions & Economic Relationships Economic Models/Linear Models Basic Differential Calculus Optimisation Functions of Several Variables Unconstrained Optimisation Constrained Optimisation Growth & Dynamics Introduction to Difference Equations

Source: Bob Beachill Leeds Metropolitan University beach@thenet.co.uk

Strategic Business Analysis SWOT Analysis PEST market analysis tool Porter's Five Forces Model Resources and Capabilities Value Chain Managing Your Value Chain Organisation Organisational Culture attitudes, values, beliefs, norms and customs Organisational Capabilities Financial Analysis Click on Image Source: QuantAA

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Organisation An organization or organisation (read more about -ize vs -ise) is a formal group of people with one or more shared goals. The word itself is derived from the Greek word (organon) meaning tool. The term is used in both daily and scientific English in multiple ways. Organization terms Organisation in sociology Organisation in management and organisational studies Organization theories Organizational structures Pyramids or hierarchies Committees or juries Staff organization or cross-functional team Matrix organization Ecologies "Chaordic" organizations See also Related lists Click on Image. Larger Image. Source: Howell & Costley

References

Financial Statements: The System

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Financial Statements: Analysis 1) 2) 3) 4) 5) 6) 7) 8) 9) 10) 11) Financial Financial Financial Financial Financial Financial Financial Financial Financial Financial Financial Statements: Statements: Statements: Statements: Statements: Statements: Statements: Statements: Statements: Statements: Statements: Introduction Who's In Charge? The System Cash Flow Earnings Revenue Working Capital Long-Lived Assets Long-Term Liabilities Pension Plans Conclusion Larger Image Click on Image Source: Investopedia Inc

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Financial Ratios A financial ratio is a ratio of two numbers of reported levels or flows of a company. It may be two financial flows categories divided by each other (profit margin, profit/revenue). It may be a level divided by a financial flow (price/earnings). It may be a flow divided by a level (return on equity or earnings/equity). The numerator or denominator may itself be a ratio (PEG ratio). Ratios Flow-to-flow Level-to-level Ratio-to-ratio To cash flow To earnings To market cap Larger Image Download Financial Ratio Analysis (177K) for Microsoft Excel. Source: Baarns Consulting Group

See also External links

Competitive Position: Competitive Advantage Literature Review Strategic Planning Competition What in the World is Competitive Advantage? Competitive Postion: Competitive Advantage What is Sustainable Competitive Advantage Sustainable Competitive Advantage Creating Business Value Interest Alignment Rents and Competitive Advantage Click on Image Source: BRS

Performance measures to support competitive advantage Click on Image Source: businessballs.com

Competitive Position: Competitive Advantage Literature Review Competitive strategy Michael Porter: Generic Strategies Risk-related Challenges

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Also see Annotated Lecture Outline

Strategic Capability: Core Competence Literature Review Corporate Capabilities Core Competency Strategic Intent Innovation New Paradigm: ResourceBased Theory Theory of Constraints Value Chain IKEA Modified Value Chain Organisational Culture Organisational Structure Economic Value Added Six Sigma Also see Annotated Lecture Outline Larger Image Click on Image Source: Sumitomo Corporation

Global Strategies Literature Review Going Global: Assess Market Opportunities Globalization, Models of Competitive Advantage and Skills The Competition of Countries Competitiveness of Nations: The Fundamentals Economist Country Briefings

Institutions and Business Strategies in Emerging Economies: A Study of Entry Mode

Also see Annotated Lecture Outline

Click on Image Source: Agrium Inc. 2004

Strategic Decision Making Literature Review Decision Theory Decision Making Game Theory The Future of Game Theory

Click on Image Source: Yale Economic Review

Also see Annotated Lecture Outline

Strategic Planning Strategic planning consists of the process of developing strategies to reach a defined objective. As we label a piece of planning "strategic" we expect it to operate on the grand scale and to take in "the big picture" (in contradistinction to "tactical" planning, which by definition has to focus more on the tactics of individual detailed activities).

Click on Image Source: Long Range Planning - International Journal of

"Long range" planning typically projects current activities and programs into a revised view of the external world, thereby describing results that will most likely occur (whether the planner wants them or not!) Also See Introduction to Strategic Management

Strategic Planning "Strategic" planning tries to "create" more desirable future results by (a) influencing the outside world or (b)adapting current programs and actions so as to have more favorable outcomes in the external environment.

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Strategic Planning Methodologies Situation Analysis Identifying cultures Perspectives Ethnographical versus Clinical approach Functionalistic versus Interpretionistic approach Artifacts Visible artifacts Invisible artifacts Culture types Changing cultures and strategy Approaches Resistance Click on Image. Larger Image Measurements Source: University of Cambridge Goals, objectives and targets , Department of Engineering Mission statements and vision statements Why strategic plans fail External links

Competitive Position: Competitive Advantage Competition is the act of striving against another force for the purpose of achieving dominance or attaining a reward or goal, or out of a biological imperative such as survival. Competition is a term widely used in several fields, including economics, business, politics, and sports. Competition may be between two or more forces, life forms, agents, systems, individuals, or groups, depending on the context in which the term is used. Sizes and levels of competition Consequences of competition Competition in different fields Economics and business competition Competition in biology and ecology Competition in politics Sports competition Competition in education

The Study of competition Competitiveness Econometrics

See also Click on Image Source:Brecker Associates

Sustainable Competitive Advantage Owning Competitive Advantage Competition Hypercompetition

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Sustainable Competitive Advantage In marketing and strategic management , sustainable competitive advantage is an advantage that one firm has relative to competing firms. The source of the advantage can be something the company does that is distinctive and difficult to replicate, also know as a core competency, for example P&G' ability to derive superior consumer insights and implement them in managing its brand portfolio.

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Creating Business Value Information technology facilitates new and more efficient way of creating business value in the new economy. As a result, instead of the traditional vertically integrated value chains, organizations must adopt business models based on independent layers of value-creating activities.

Meltdown of the Value Chain Impact of rising strength of emerging economies on market expansion Role of emerging market conditions on first mover advantages Sources of first mover advantages in emerging markets Strategies to sustain these advantages Source: General Management Review

Complementing for Complexity: Leading Through Managing The first mover in an e

Competitive Strategy: Michael Porter Michael Porter: Generic Strategies

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Strategic Capability: Core Competence Internal capabilities Corporate capabilities Resource-based view Capabilities in the new economy Synergy Patents Effective leadership Teamwork Continuous learning Tacit knowledge Larger Image Click on Image Source: Vadim Kotelnikov, GIVIS, Ten3 East-West

Core Competency Core Competency The Work of Hamel and Prahalad Sustainable competitive advantage Synergy

The Competence Problem Principles and Functions of Management - Henri Fayol Qualities of a Successful Manager The Motivation and Performance Obsession Leadership and Management Managerial Competency Questionnaire Click on Image Source: Forio Corporation Larger Image

Strategic Intent Corporate Vision, Mission, Goals and Strategies Your Enterprise Strategy Dynamic Business Strategy Strategy Innovation Marketing and Selling Strategic Thinking New-to-the-World Product Development Managing Your Value Chain Strategy Implementation Larger Image Click on Image Source: Vadim Kotelnikov, GIVIS, Ten3 East-West

Innovation Efficiency Improvement New ways of doing business New rapidly globalizing economy Technological innovation Technology Transfer

Fast Company Reaching and servicing customers The Entrepreneur Innovation project management Roadmaps Guiding principles Business processes Click on Image Source: Vadim Kotelnikov, GIVIS, Ten3 East-West

New Paradigm: Resource-Based Theory Strategic Marketing and the Resource Based View of the Firm Business Strategy Setting Objectives & Planning Customer Satisfaction Performance Management Performance Measurement System Balanced Scorecard (BSC) Service-Profit Chain Sustainable Growth Strategies

Porter's Five Forces Model for Industry Analysis Economic Value Added (EVA) Business Architect Larger Image Click on Images Source: Vadim Kotelnikov, GIVIS, Ten3 East-West

Theory of Constraints Theory of Constraints (TOC) is a body of knowledge on the effective management of (mainly business) organizations, as systems. The author is Eliyahu M. Goldratt, with many others contributing to the body of knowledge. The Thinking Process (TP) Throughput Accounting Application-specific TOC solutions Operations Supply Chain / Logistics Finance and Accounting Project Management Marketing and Sales The Six Necessary and Sufficient Questions relating to Technology Development and practice Also See References Larger Image Click on Image Source: Osaka Gakuin University

A Guide to Implementing the Theory of Constraints (TOC)

Value Chain

Click on Image Source: Vickers

IKEA Modified Value Chain Michael Porter argues that an organization can enhance its competitive positioning by performing key internal activities in the value chain at a lower cost and better than its competitors (Bartol et al, 1993: 211). The value chain approach identifies two major activities- primary and secondary. Primary actives include production, marketing, logistics and after-sale functions. Secondary activities, on the other hand, are identified as support processes to primary activities.

IKEA Modified Value Chain These include, firm infrastructure, Human Resource Management. Technology development, and procurement. The ultimate purpose of the firm is to add as much customer "value" in each of the primary activities (Pearce et. al, 1993: 184187). Ikea has modified the value chain approach by integrating the customer in the process and introducing a two-way value system between customers, suppliers, and Ikea's headquarters. In this global sourcing strategy, the customer is a supplier of time, labor, information, knowledge and transportation. On the other hand, the suppliers are customers, receiving technical assistance from Ikea's corporate technical headquarters through various business services. The company wants customers to understand that their role is not to consume value, but rather to create it (Norrmann et al, 1993: 67).

IKEA Modified Value Chain Ikea's role in the value chain is to mobilize suppliers and customer to help them further add value to the system. Customers are clearly informed in the catalogs of what the firm's business systems provides, and what they are expected to add to the final process. In order to furnish the customer with good quality products at a low cost, the firm must be able to find suppliers that can deliver high quality items at low cost per unit. The headquarters provides carefully selected suppliers with technical assistance, leased equipment and the necessary skills needed to produce high quality items. This long-term supplier relationship does not only produce superior products, but also add internal value to the suppliers (Normann et al, 1993: 72). In addition, this value-chain modification differentiates Ikea from its competition.

Organisational Culture Organizational culture comprises the attitudes, values, beliefs, norms and customs of an organization. Whereas organizational structure is relatively easy to draw and describe, organizational culture is considered to be less tangible and more difficult to measure. It is also called Company Culture. Influences on organizational culture Strong/Weak cultures Classifying organizational culture Johnsons Cultural Web Hofstede Deal and Kennedy Charles Handy Edgar Schein Elements of culture Critical Views on Organizational Culture Figures in organizational culture See also Sources Click on Image. Larger Image Source: University of N. Carolina

Organisational Structure Organizational structure is the way in which the interrelated groups of an organization are constructed. The main concerns are effective communication and coordination. Pre-bureaucratic Bureaucratic Functional Structure Divisional Structure Post-Bureaucratic Matrix organization Multi-Unit Organization Adhocracy

See also

Click on Image. Larger Image Source: 2004-2006 Visitask

Economic Value Added What Does Economic Value Added Really Mean?

Click on Images for further information Source: David Harper, (Contributing Editor - Investopedia Advisor) Larger Image

Six Sigma Six Sigma was pioneered by Bill Smith at Motorola in 1986[1]. Originally, it was defined[2] as a metric for measuring defects and improving quality; and a methodology to reduce defect levels below 3.4 Defects Per (one) Million Opportunities (DPMO). Six Sigma is a registered service mark and trademark of Motorola, Inc[3]. Motorola has reported over US$17 billion savings[4] from Six Sigma to date. AlliedSignal and GE became early adopters of Six Sigma and reported benefits of over US$300 million during its first year of application[5]. Their CEO's, Larry Bossidy and Jack Welch, played a vital role in popularizing Six Sigma. Other major organizations who claim to have benefited from Six Sigma implementation are Ford, Caterpillar, Microsoft, Raytheon, Quest Diagnostics, Seagate Technology, Siemens, Merrill Lynch, Lear, 3M and many more. Click on Image Source: KETCH.ca

Six Sigma Definition Application & Success Healthcare Banking Insurance Construction Military

Methodology DMAIC DMADV

Roles Required for Implementation Examples of Some Key Tools Used Criticisms of Six Sigma Of its origin Of the term: Six Sigma Of statistics Of methods Of effects Click on Image Source: QCI International. All rights reserved.

References See also External links

Global Strategies Globalisation Larger Map Source: BizEd, University of Bristol

Click on image for further information

Global Strategies Globalization (or globalisation1) refers to the worldwide phenomenon of technological, economic, political and cultural exchanges, brought about by modern communication, transportation and legal infrastructure as well as the political choice to consciously open cross-border links in international trade and finance. Meaning & Debate History Nature and existence of globalization Characteristics Anti-globalization Pro-globalization (globalism) Other uses Measurement of Globalization Notes See also External links

Illustration by Viktor Koen for Newsweek

Comparative Advantage In economics, the theory of comparative advantage explains why it can be beneficial for two countries to trade, even though one of them may be able to produce every kind of item more cheaply than the other. What matters is not the absolute cost of production, but rather the ratio between how easily the two countries can produce different kinds of things. The concept is highly important in modern international trade theory. Origins of the theory Analysis of Ricardo's theory Examples Example 1 Example 2 Example 3

More complexities References See also External links Click on Image Source: Pakissan.com

International Trade International trade is the exchange of goods and services across international boundaries or territories. In most countries, it represents a significant share of GDP. While international trade has been present throughout much of history (see Silk Road, Amber Road), its economic, social, and political importance has been on the rise in recent centuries. Industrialization, advanced transportation, globalization, multinational corporations, and outsourcing are all having a major impact. Increasing international trade is the usually primary meaning of " globalization". International trade theory Ricardian model Heckscher-Ohlin model Specific Factors Gravity model

Regulation of international trade Risks in international trade Economic risks Political risks

See also External links Data Click on Image Source: Copyright 2006 Time Inc.

Multinational Corporations A multinational corporation (MNC) or multinational enterprise (MNE) or transnational corporation (TNC) is a corporation/enterprise that manages production establishments or delivers services in at least two countries.

Critiques Examples In fiction See also

Annual Report on the Guideli The 2005 edition includes a special focus on corporate responsibility in the Fostering Growth and Promoting a Responsible Market Economy - A G8 Declaration developing world

Multinational Corporations Multinational corporations (MNC) are often divided into three broad groups: Horizontally integrated multinational corporations manage production establishments located in different countries to produce same or similar products. Vertically integrated multinational corporations manage production establishment in certain country/countries to produce products that serve as input to its production establishments in other country/countries. Diversified multinational corporations manage production establishments located in different countries that are neither horizontally or vertically integrated.

Multinational Corporations Multinationals have played an important role in globalization. Given their international reach and mobility, prospective countries, and sometimes regions within countries, must compete with each other to have MNCs locate their facilities (and subsequent tax revenue, employment, and economic activity) within. To compete, countries and regional political districts offer incentives to MNCs such as tax breaks, pledges of governmental assistance or improved infrastructure, or lax environmental and labour standards. This process of becoming more attractive to foreign investment can be characterized as a race to the bottom.

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Decision Theory Decision theory is an interdisciplinary area of study, related to and of interest to practitioners in mathematics, statistics, economics, philosophy, management, and psychology. It is concerned with how real decision-makers make decisions, and with how optimal decisions can be reached. Normative and descriptive decision theory What kinds of decisions need a theory? Choice between incommensurable commodities Choice under uncertainty Pascal's Wager of choice under uncertainty Alternatives to probability theory Intertemporal choice Social decisions

Complex decisions Paradox of choice See also References Larger Image Click on Image Source: Times Books

Decision Making Decision making is the cognitive process of selecting a course of action from among multiple alternatives. Every decision-making process produces a final choice. It can be an action or an opinion. It begins when we need to do something but we do not know what. Therefore decision-making is a reasoning process which can be rational or irrational, and can be based on explicit assumptions or tacit assumptions.

Click on Image Source: Cognitive Technologies .

Decision Making Decision making style Cognitive and personal biases in decision making Cognitive neuroscience of decision making Decision making in groups Principles

Decision making in one's personal life Decision making in healthcare Path dependency Decision making in business and management See also References External links Some important research journals

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Game Theory Game theory is a branch of applied mathematics that studies strategic situations where players choose different actions in an attempt to maximize their returns. First developed as a tool for understanding economic behavior, game theory is now used in many diverse academic fields, ranging from biology, psychology to philosophy. Beginning in the 1970s, game theory has been applied to animal behavior, including species' development by natural selection. Because of interesting games like the prisoner's dilemma, in which rational selfinterest hurts everyone, game theory has been used in political science, ethics and philosophy. Finally, game theory has recently drawn attention from computer scientists because of its use in artificial intelligence and cybernetics.

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Game Theory Representation of games Normal form Extensive form

Types of games Symmetric and asymmetric Zero sum and non-zero sum Simultaneous and sequential Perfect information and imperfect information Infinitely long games

Uses of game theory Economics and business Descriptive Normative Biology Computer science and logic Political science Philosophy

History of game theory Notes References

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Also see Game Theory, Strategic Behavior, and Oligopoly

Competitive Position - Competitive Advantage 1/4 Lecture Opening Remarks It is useful to start the session by recapping on the previous lecture and emphasizing the notion of strategy as imperfection or the quest for unfair advantage. This lecture explores the idea of competitive advantage in more detail and puts some flesh on the bare bones of generic strategies introduced in the preceding session. The lecture focuses on the idea that strategy is about the position of an organisation with respect to its markets and competitors (the so called marketbased or positioning school) and looks at the relationships between market structure, pricing and strategy. The Market Positioning School A recap on the generic strategies framework introduced briefly in the last chapter and restatement of the stuck in the middle hypothesis.

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Competitive Position - Competitive Advantage 2/4 The Nature and Source of Cost Advantage A more detailed look at the nature and sources of cost advantage focussing on the links between economies of scale, scope and learning and the achievement of cost advantage. The Nature and Source of Differentiation Advantage A more detailed look at the nature and source of differentiation advantage and the risks associated with this strategy emphasising the difference between differentiation and cost based strategies. Identifying the potential for differentiation. The Concept of Competitive Advantage A definition of competitive advantage and a description of its constituent elements. An explanation of firm-specific imperfections as the source of competitive advantage and the interrelationship between industry structure and competitive advantage.. This latter point may be omitted from undergraduate lectures and developed in a tutorial context. Figure 6.7. An explanation of the concept of sustainability and its determinants (on undergraduate programmes this may be included a little later in the course)

Competitive Position - Competitive Advantage 3/4 Three Major Routes to Competitive Advantage: Is it possible for a firm to pursue more than one generic strategy? A re-statement of the stuck in the middle hypothesis and a summary of the reasons for arguing that, in order to be successful, a firm should commit to a single strategy. The critique of this position and the implications of composite strategies. The relationship between generic strategies and market structure (this may be omitted on undergraduate programmes). On undergraduate programmes the following sections may form the basis of a second lecture Market Segmentation Analysis The rationale for market segmentation analysis. The concept of offer curves and price/quality trade-offs (this element may be omitted on undergraduate programmes). The identification of segmentation variables. Value Creation and Value Analysis The concept of value and consumer surplus. The link between value, competitive strategy and competitive advantage. Value maps could be included if time permits but can be omitted without losing the main thrust of the argument.

Competitive Position - Competitive Advantage 4/4 Strategic Group Analysis An explanation of the concept of strategic groups and rationale for this kind of analysis. Mapping strategic groups over time and strategic groups in practice. Industry Transformation Using the 5 forces framework to gain insight into industry transformation . On undergraduate programmes this may be omitted from the main lecture and developed in tutorial sessions. Business Models This is an optional part of this session and may be considered in a later slot. An explanation of the terminology. The key elements of a business model. Business models in practice. Achieving a sustainable and defensible strategic position. Larger Image Click on Image Source: Vadim Kotelnikov, GIVIS, Ten3 East-West

Strategic Capability: Core Competence 1/3 Lecture a recap of prior concepts and the logic of the market-based view of the firm. A discussion of the way this lecture fits with the overall framework of the strategy course. SLIDE: Figure 1.6 A systemic model of strategy The Resource-based View of the Firm- an explanation of the main tenets of the resourcebased view and the ways in which it differs from the market-based view. SLIDE: The marketbased versus the resource-based view of the firm. The Language of Resources and Capabilities a discussion of key terminology, for example capabilities, competences, strategic assets highlighting the fact that different authors use different terms to refer to similar concepts. SLIDE: Some key definitions SLIDE: Core Competences = Distinctive Capabilities = Strategic Assets The Importance of Intangibles an explanation of what is meant by intangibles and why they are considered to be of particular importance SLIDE: Identifying Intangibles p. 263

Strategic Capability: Core Competence 2/3 Determining the Value of Competences an explanation of the concepts of imitability, durability, substitutability and appropriability. SLIDE: Figure 7.5 Linking the Market-based and Resource-based Views discussion of the ways in which these two perspectives complement each other which draws on the notion of key success factors. For undergraduates this could be the concluding slide. SLIDE 7.10 SLIDE: Figure7.6

Strategic Capability: Core Competence 3/3 Competence-based Competition an introduction to the notions of strategic intent and strategic innovation, emphasizing the role of learning. SLIDE: Figure 7.7 Competitive strategy in practice some prescriptive advice about managing the business for value and positioning the business for growth. More suited to postgraduate students with management experience. SLIDE: Figure 7.2 SLIDE: Figure 7.15 Concluding comments a brief summary of the key ideas highlighting of the fact that every firm is different and that managerial processes, information and communication together with intangible assets and core competences are central to developing and sustaining competitive advantage. Click on Image Source: SUNY Cobleskill

Global Strategies 1/6 Lecture The 'global strategies and international advantage' topic covers a lot of ground and on undergraduate programmes it might be worthwhile covering the topic over two lectures. The first lecture could focus on the concept globalization and the pursuit of international competitive advantage at the nation and industry level. The second could focus on firm level choices and the strategic options available to international firms Introduction opening remarks should establish the link with previous lectures on competitive and corporate strategy and explain this lectures focus on the global arena. Click on Image. Larger Image Source: Carnegie Endowment for International Peace

Global Strategies 2/6 The Terminology of International Business an explanation of key terms and the introduction of the notions of internationalization and globalization. Slide: The terminology of international business (list of key definitions drawn from p.412 and 413) The Context of International Strategy a brief review of the major trends in trade and foreign direct investment. A discussion of the factors driving globalization Slide: Table 11.1 and 11.2

Click on Image Source: 2000-2006 by The Globalist

Global Strategies 3/6 National Competitive Advantage an introduction to, and explanation of, the determinants of national competitive advantage (Porters diamond model). Lectures to postgraduate audiences could also include a discussion of the limitations of the model (discussed on p.434-436 of the text) and introduce the double diamond model. Slide: Figure 11.1 The Internationalization process an explanation of the ways in which domestic firms develop their overseas activities and the evolution of different forms engagement in foreign markets over time. A summary of the advantages and disadvantages of these different forms of international activity, e.g. licensing, foreign direct investment, etc. Slide: Figure 11.2

Click on Image Source: Irish Agriculture and Food Development Authority

Global Strategies 4/6 From international to global strategies a reiteration of the opening themes of internationalization, moving to a discussion of the strategic options available to multi-national firms, introducing the notion of multi-domestic and global strategies. Slide: Figure 11.3 Slide: Bullet points contrasting multi-domestic and global strategies The Drivers of Globalization a discussion of the forces that are driving the industries and firms to go global and the limitations of, and tensions in, this process Slide: Table 11.4 Global v Local an outline of the trade-offs between standardisation and differentiation and the link between the strategic environment and available strategic options. Slide: Table 11.5 Strategic Choices an explanation of Bartlett and Ghosal's four basic strategies used to enter and compete in international environments Slide: Figure 11.5 The Best of Both Worlds Transnational Strategies an outline of what is understood by a transnational strategy and an explanation of implementing this strategy in practice.

Global Strategies 5/6 Strategy and Organization a return to one of the key themes running through the strategy literature, namely the strategy/structure debate. A discussion of the fit between strategy and structure in international firms, paying particular attention to Bartlett and Ghoshal's (1989) model. If time permits the lecturer may also like to re-introduce the notions of country-specific and firm-specific advantages and Rugman & D'Cruz's (2000) 'flagship'model Slide: Figure 11.7 Slide: Figure 11.11 (optional) Managing International Organizations an explanation of the complexity inherent in organising a multi-product, multi-market firm and a discussion of the ways in which managers may seek to organise and control such businesses. Slide: Bullet points for and against a matrix structure Slide: Figure 11.13

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Global Strategies 6/6 Concluding Comments a summary of some of the main themes including the nature of globalization and the significance of national competitive advantage, the global/local debate and the way this connects with firm-specific versus country-specific advantages, the tantalizing possibility of gaining the 'best of both worlds' through transnationality and the possibilities and problems of developing appropriate organizational structures and systems to make the transnational organization a reality Click on Image. Larger Map Source: BizEd

Strategic Decision Making 1/4 Lecture - a discussion of the change in emphasis from micro and macroeconomic analyses of strategy to more process-based approaches. A re-iteration of the earlier theme of 'what happens when strategy meets organization?' Slide: Figure 2.2 Different perspectives on strategic decisionmaking - an explanation of Mintzberg, Quinn and Ghoshal's (1998) 5 'Ps' of strategy and a discussion of the ways in which the dominant view of strategic decision-making has changed over time. Slide: Bullet points outlining the 5 Ps of strategy Making Choices - an explanation of rules of thumb and option selection techniques emphasizing the fact that the way strategy is viewed determines, at least in part, the techniques used to aid decision-making. Slide: Table 13.1

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Strategic Decision Making 2/4 Game Theory - an explanation of the basic terminology and approach of game theory and the introduction of a simple game such as the Prisoners' Dilemma. Undergraduate lectures may choose to omit the slide and merely introduce the general concept of game theory. Slide: Table 13,2 Sensitivity Analysis - a brief explanation of the technique Slide - Definition of sensitivity analysis from 13.2.2 Options - an explanation of the key dimensions of strategic options namely the identification of additional or alternative capabilities and the identification of potential future markets and/or new customer behaviours. Slide: Figure 13.1

Click on Image Source: Drexel University

Strategic Decision Making 3/4 Decision-making Processes: Thinking and Acting - a reiteration of the point that decisionmaking is not a simple process that happens in a linear sequence - a period of thinking and followed by a period of acting. Decisionmaking and the development of alternative courses of action are fashioned in their doing. An explanation of different perspectives on decision-making processes e.g. planned v chaotic Slide: Figure 13.2 and the architecture of strategic decision-making The architecture of strategic decision making - the importance of decision-specific characteristics and organizational context to decisionmaking processes. (Please note: undergraduate tutors may decide to omit this topic from the lecture and to explore these issues raised in separate lectures.) Slide: Bullet points taken from top of page 514 Slide: bullet points taken from middle of page 515

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Strategic Decision Making 4/4 Strategic Decision-making and Performance - a discussion of the relationship between decision processes and their outcomes, highlighting the importance of the knowledge base of managers and the receptivity of the organizational context Slide: factors of success - bullet points of subheadings in 13.5.2 Closing remarks - A re-statement of the key themes of the lecture placing emphasis on not only the choices made but also on how managers make decisions and the relationship between decision-making processes and performance outcomes.

Click on Image Source: 2000 -2006 Hofstra University

WAL-MART'S SUPPLY CHAIN MANAGEMENT PRACTICES

WAL-MART'S SUPPLY CHAIN MANAGEMENT PRACTICES When you start to collapse the supply chain, accuracy in execution becomes critical. Any lack of accurate information and processes creates costly bottlenecks in the flow of goods and materials. -Bruce Richmond, Global head, Andersen Consulting.

INTRODUCTION The US-based Wal-Mart ranked first in the global Fortune 500 list in the financial year 2001-02 earning revenues of $219.81 billion (Refer Table I). Wal-Mart was the largest retailing company in the world. The company was much bigger than its competitors in the US Sears Roebuck, KMart, JC Penney and Nordstrom combined (Refer Exhibit I). In 2002, Wal-Mart operated more than 3,500 discount stores, Sams Clubs and Supercenters in the US and more than 1,170 stores in all major countries across the world. The company also sold products on the Internet through its website, walmart.com.

TABLE I GLOBAL FORTUNE 500 LIST (2002)

Rank 1 2 3 4 5

Company Wal-Mart Stores Exxon Mobil General Motors Ford Motor Enron

Revenues (in $ millions) 219,812.0 191,581.0 177,260.0 162,412.0 138,718.0

Source: www.fortune.com

Wal-Mart was one of the largest private sector employers in the world, with employee strength of approximately 1.28 million. The companys founder, Sam Walton (Walton) had always focused on improving sales, constantly reducing costs, adopting efficient distribution and logistics management systems and using innovative information technology (IT) tools. According to analysts, Wal-Mart was able to achieve a leadership status ((Refer Exhibit II)) in the retail industry because of its efficient supply chain management practices. Captain Vernon L. Beatty, aide-de-camp to the commander, Defense

Supply Center, Columbus, Ohio said, Supply chain management is moving the right items to the right customer at the right time by the most efficient means. No one does that better than Wal-Mart.

Wal-Mart's Supply Chain Management Practices

BACKGROUND NOTE Walton was born in 1918 at Kingfisher, Oklahoma, US. After graduating from the University of Missouri in 1940, Walton worked for the famous retailer, J C Penney. In his first job, Walton had displayed the qualities of a good salesman. He realized the importance of building loyalty among customers as well as employees. In the mid 1940s, Walton gave up his job and decided to set up his own retail store. He purchased a store franchise from Ben Franklin in Newport, Arkansas. It was here that he learnt his first lessons in retailing offering significant discounts on product prices to expand volumes and increase overall profits. The business was successful and Walton soon acquired a second store within three years. Walton not only looked for opportunities to open stores in other small towns but also explored the possibility of introducing innovative practices such as self-service. As the need for people to manage his stores increased, Walton tried to attract talented and experienced people from other stores. By 1969, Walton had established 18 Wal-Mart stores, reporting an annual sale of $44 million. In mid 1970s, WalMart acquired 16 Mohr-Value stores in Michigan and Illinois. By the late 1970s, the retail chain had established a pharmacy, an auto service center, and several jewellery divisions. In the 1980s, Wal-Mart continued to grow rapidly due to the huge customer demand in small towns, where most of its stores were located. Commenting on the growth of Wal-Mart, Walton said: When we arrived in these small towns offering low prices every day, customer satisfaction guaranteed, and hours that were realistic for the way people wanted to shop, we passed right by that old variety store competition, with its 45 percent mark ups, limited selection and limited hours. Wal-Mart stores were located at a convenient place in a big warehouse-type building and targeted customers who bought merchandise in bulk. Customers could buy goods at wholesale prices by becoming members and paying a nominal membership fee. By 1984, there were 640 Wal-Mart stores in the US, generating sales of about $4.5 bn and accruing profit of over $200 mn. Wal-Mart suffered a setback in 1992, when Walton died after a prolonged illness. But it continued its impressive growth in the 1990s, focusing more on establishing its stores overseas. In 1992, Wal-Mart expanded its operations in Mexico by entering into a joint venture with Cifra. Two years later, the company acquired 122 Woolco stores from Woolworth, Canada. By 1997, Wal-Mart had become the largest volume discount retailer in Canada and Mexico. In 1997, WalMart acquired the 21-store German hypermarket chain, Wertkauf. Other international expansion efforts included the purchase of Brazilian retailer Lojas Americans 40 percent interest in their joint venture, and the acquisition of four stores and additional sites in South Korea from Korea Makro. In January 1999, Wal-Mart expanded its German operations by buying 74 stores of the hypermarket chain, Interspar. The stores were acquired from Spar Handels AG, which owned multiple retail formats and wholesale operations throughout Germany. By 2002, Wal-Mart had emerged as the largest company in the world in terms of revenues. Analysts felt that Wal-Mart had come a long way since 1979, when the company generated annual revenues of more than a billion dollar for the first time. By 1993, the company was doing a billion dollar business in a week and by 2001, it was crossing the billion dollar mark in every 1.5 days. Analysts attributed this phenomenal growth to Wal-Marts continued focus on customer needs and reducing costs through efficient supply chain management practices. The company

was able to offer a vast range of products at the lowest costs in the shortest possible time. This was possible mainly due to two factors Wal-Marts highly automated distribution centers, which significantly reduced shipping costs and time, and its computerized inventory system, which speeded up the checking out time and recording of transactions.

Wal-Mart's Supply Chain Management Practices

MANAGING THE SUPPLY CHAIN PROCUREMENT AND DISTRIBUTION Wal-Mart always emphasized the need to reduce its purchasing costs and offer the best price to its customers. The company procured goods directly from manufacturers, bypassing all intermediaries. Wal-Mart was a tough negotiator on prices and finalized a purchase deal only when it was fully confident that the products being bought were not available elsewhere at a lower price. According to Claude Harris, one of the earliest employees, Every buyer has to be tough. That is the job. I always told the buyers: You are negotiating for your customer. And your customer deserves the best prices that you can get. Dont ever feel sorry for a vendor. He always knows what he can sell, and we want his bottom price. We would tell the vendors, Dont leave in any room for a kickback because we dont do it here. And we dont want your advertising program or delivery program. Our truck will pick it up at your warehouse. Now what is your best price? Wal-Mart spent a significant amount of time meeting vendors and understanding their cost structure. By making the process transparent, the retailer could be certain that the manufacturers were doing their best to cut down costs. Once satisfied, Wal-Mart believed in establishing a longterm relationship with the vendor. In its attempt to drive hard bargains, Wal-Mart did not even spare big manufacturers like Procter & Gamble (P&G). However, the company, generally, preferred local and regional vendors and suppliers. In 1998, Wal-Mart had over 40 distribution centers located at different geographical locations in the US. Over 80,000 items were stocked in these centers. Wal-Marts own warehouses directly supplied 85 percent of the inventory, as compared to 50-65 percent for competitors. According to rough estimates, Wal-Mart was able to provide replenishments within two days (on an average) against at least five days for competitors. Shipping costs for Wal-Mart worked out to be roughly 3 percent as against 5 percent for competitors. Each distribution center was divided into different sections on the basis of the quantity of goods received and was managed the same way for both cases and palletized goods. The inventory turnover rate was very high, about once every two weeks for most of the items. Goods meant for distribution within the US usually arrived in pallets, while imported goods arrived in re-usable boxes or cases. In some cases, suppliers delivered goods such as automotive and drug products directly to the stores. About 85% of the goods which were available at the stores passed through the distribution centers. The distribution centers ensured a steady and consistent flow of products to support the supply function. As Wal-Mart used sophisticated barcode technology and hand-held computer systems, managing the center became easier and more economical. Every employee had an access to realtime information regarding the inventory levels of all the products in the center. They had to just make two scans one to identify the pallet, and the other to identify the location from where the stock had to be picked up. Different barcodes were used to label different products, shelves and bins in a center. The hand-held computer guided an employee with regard to the location of a particular product from a particular bin or shelf in the center. When the computer verified the bin and picked up a product, the employee confirmed whether it was the right product or not. The quantity of the product required from the center was entered into the hand-held computer by the employee and then the computer updated the information on the main server. The hand-held computer also enabled the packaging department to

get accurate information about the products to be packed. It displayed all information about the storage, packaging and shipping of a particular product thus, saving time on unnecessary paperwork. It also enabled the center

Wal-Mart's Supply Chain Management Practices

supervisors to monitor their employees closely enabling them to give directions and even guide them even on the move. This enabled the company to satisfy customer needs quickly and improve the level of efficiency of the distribution center management operations. Each distribution center had facilities for maintaining personal hygiene such as shower bath and fitness centers. It also had provision for food, sleep and personal business. The distribution center could also be used for meetings and paperwork. The truck drivers of Wal-Mart sometimes availed these facilities.

LOGISTICS MANAGEMENT An important feature of Wal-Marts logistics infrastructure was its fast and responsive transportation system. The distribution centers were serviced by more than 3,500 company owned trucks. These dedicated truck fleets allowed the company to ship goods from the distribution centers to the stores within two days and replenish the store shelves twice a week. The truck fleet was the visible link between the stores and distribution centers. Wal-Mart believed that it needed drivers who were committed and dedicated to customer service. The company hired only experienced drivers who had driven more than 300,000 accident-free miles, with no major traffic violation. Wal-Mart truck drivers generally moved the merchandise-loaded trailers from Wal-Mart distribution centers to the retail stores serviced by each distribution center. These retail stores were considered as customers by the distribution centers. The drivers had to report their hours of service to a coordinator daily. The coordinator scheduled all dispatches depending on the available driving time and the estimated time for travel between the distribution centers and the retail stores. The coordinator informed the driver of his dispatches, either on the drivers arrival at the distribution center or on his return to the distribution center from the retail store. The driver was usually expected to take a loaded truck trailer from the distribution center to the retail store and return back with an empty trailer. He had to dispatch a loaded truck trailer at the retail store and spend the night there. A driver had to bring the trailer at the dock of a store only at its scheduled unloading time, no matter when he arrived at the store. The drivers delivered the trailers in the afternoon and evening hours and they would be unloaded at the store at nights. There was a gap of two hours between unloading of each trailer. For instance, if a store received three trailers, the first one would be unloaded at midnight (12 AM), the second one would be unloaded at 2 AM and the third one at 4 AM. Although, the trailers were left unattended, they were secured by the drivers, until the store personnel took charge of them at night. Wal-Mart received more trailers than they had docks, due to their large volume of business. Wal-Mart maintained a strict vigil over its drivers by keeping a record of their activities through the Private Fleet Driver Handbook (Refer Exhibit III). The purpose of the book was to educate the drivers with regard to the code of conduct. It also included the terms and conditions regarding the safe exchange of trailers with the store personnel and the safety of Wal-Marts property. This book also contained a list of other activities, the non-compliance of which would result in the termination of the driver. To make its distribution process more efficient, Wal-Mart

also made use of a logistics technique known as cross-docking. In this system, the finished goods were directly picked up from the manufacturing plant of a supplier, sorted out and then directly supplied to the customers. The system reduced the handling and storage of finished goods, virtually eliminating the role of the distribution centers and stores. There were five types of cross-docking (Refer Exhibit IV).

Wal-Mart's Supply Chain Management Practices

In cross docking, requisitions received for different goods from a store were converted into purchase or procurement orders. These purchase orders were then forwarded to the manufacturers who conveyed their ability or inability to supply the goods within a particular period of time. In cases where the manufacturer agreed to supply the required goods within the specified time, the goods were directly forwarded to a place called the staging area. The goods were packed here according to the orders received from different stores and then directly sent to the respective customers. To gain maximum out of cross-docking, Wal-Mart had to make fundamental changes in its approach to managerial control. Traditionally, decisions about merchandising, pricing and promotions had been highly centralized and were generally taken at the corporate level. The crossdocking system, however, changed this practice. The system shifted the focus from supply chain to the demand chain, which meant that instead of the retailer pushing products into the system; customers could pull products, when and where they needed. This approach placed a premium on frequent, informal cooperation among stores, distribution centers and suppliers with far less centralized control than earlier.

INVENTORY MANAGEMENT Wal-Mart had developed an ability to cater to the individual needs of its stores. Stores could choose from a number of delivery plans. For instance, there was an accelerated delivery system by which stores located within a certain distance of a geographical center could receive replenishment within a day. Wal-Mart invested heavily in IT and communications systems to effectively track sales and merchandise inventories in stores across the country. With the rapid expansion of Wal-Mart stores in the US, it was essential to have a good communication system. Hence, Wal-Mart set up its own satellite communication system in 1983. Explaining the benefits of the system Walton said, I can walk in the satellite room, where our technicians sit in front of the computer screens talking on the phone to any stores that might be having a problem with the system, and just looking over their shoulders for a minute or two will tell me a lot about how a particular day is going. On the screen, I can see the total of the days bank credit sales adding up as they occur. If we have something really important or urgent to communicate to the stores and distribution centers, I, or any other Wal-Mart executive can walk back to our TV studio and get on that satellite transmission and get it right out there. I can also go every Saturday morning around three, look over these printouts and know precisely what kind of work we have had. Wal-Mart was able to reduce unproductive inventory by allowing stores to manage their own stocks, reducing pack sizes across many product categories, and timely price markdowns. Instead of cutting inventory across the board, Wal-Mart made full use of its IT capabilities to make more inventories available in the case of items that customers wanted most, while reducing the overall inventory levels. Wal-Mart also networked its suppliers through computers. The company entered into collaboration with P&G for maintaining the inventory in its stores and built an automated reordering system, which linked all computers between P&G and its stores and other distribution centers. The

computer system at Wal-Mart stores identified an item which was low in stock and sent a signal to P&G. The system then sent a re-supply order to the nearest P&G factory through a satellite communication system. P&G then delivered the item either to the Wal-Mart distribution center or directly to the concerned stores. This collaboration between Wal-Mart and P&G was a win-win proposition for both because Wal-Mart could monitor its stock levels in the stores constantly and also identify the items that were moving fast. P&G could also lower its costs and pass on some of the savings to Wal-Mart due to better coordination.

Wal-Mart's Supply Chain Management Practices

Employees at the stores had the Magic Wand, a hand-held computer which was linked to in-store terminals through a radio frequency network. These helped them to keep track of the inventory in stores, deliveries and backup merchandise in stock at the distribution centers. The order management and store replenishment of goods were entirely executed with the help of computers through the Pointof-Sales (POS) system. Through this system, it was possible to monitor and track the sales and merchandise stock levels on the store shelves. Wal-Mart also made use of the sophisticated algorithm system which enabled it to forecast the exact quantities of each item to be delivered, based on the inventories in each store. Since the data was accurate, even bulk items could be broken and supplied to the stores. Wal-Mart also used a centralized inventory data system using which the personnel at the stores could find out the level of inventories and the location of each product at any given time. It also showed whether a product was being loaded in the distribution center or was in transit on a truck. Once the goods were unloaded at the store, the store was furnished with full stocks of inventories of a particular item and the inventory data system was immediately updated. Wal-Mart also made use of bar coding and radio frequency technology to manage its inventories. Using bar codes and fixed optical readers, the goods could be directed to the appropriate dock, from where they were loaded on to the trucks for shipment. Bar coding devices enabled efficient picking, receiving and proper inventory control of the appropriate goods. It also enabled easy order packing and physical counting of the inventories. In 1991, Wal-Mart had invested approximately $4 billion to build a retail link system. More than 10,000 Wal-Mart retail suppliers used the retail link system to monitor the sales of their goods at stores and replenish inventories. The details of daily transactions, which approximately amounted to more than 10 million per day, were processed through this integrated system and were furnished to every Wal-Mart store by 4 a.m., the next day. In October 2001, Wal-Mart tied-up with Atlas Commerce for upgrading the system through the Internet enabled technologies. Wal-Mart owned the largest and most sophisticated computer system in the private sector. The company used Massively Parallel Processor (MPP) computer system to track the movement of goods and stock levels. All information related to sales and inventories was passed on through an advanced satellite communication system. To provide back-up in case of a major breakdown or service interruption, the company had an extensive contingency plan. By making effective use of computers in all its companys operations, Wal-Mart was successful in providing uninterrupted service to its customers, suppliers, stockholders and trading partners.

THE BENEFITS REAPED Wal-Mart strongly believed and constantly emphasized on strengthening its relationships with its customers, suppliers and employees. The company was very vigilant and sensed the smallest of changes in store layouts and merchandising techniques to improve performance and value for customers. The company made efforts to capitalize on every cost saving opportunity. The savings on cost were always passed on to the consumers, thereby adding value at every stage and process. Wal-Mart also enjoyed

the benefits of low transportation costs since it had its own transportation system which assisted WalMart in delivering the goods to different stores within (or sometimes less than) 48 hours. Transportation costs for Wal-Mart were estimated at approximately 3% of the total costs as compared to 5% for their competitors. Having its own transportation system enabled Wal-Mart to replenish the shelves four times faster than its competitors. Wal-Mart priced its goods economically and the prices varied from day to day. The company enjoyed good bargaining power as it purchased huge quantities. This enabled it to price its products competitively and pass on the benefits to the consumers. The company offered higher discounts than any other retailer and they earned good revenues in the form of higher volumes. Low pricing ensured that the sales volumes were high and consistent. 7

Wal-Mart's Supply Chain Management Practices

The benefits of an efficient supply chain management system included reduction in lead time,1 faster inventory turnover, accurate forecasting of inventory levels, increased warehouse space, reduction in safety stock and better working capital utilization. It also helped reduce the dependency on the distribution center management personnel resulting in minimization of training costs and errors. The stock-out of goods and the subsequent loss arising out of it was completely eliminated. Wal-Marts supply chain management practices resulted in increased efficiency in operations and better customer service. It eliminated old stocks and maintained quality of goods. Bar coding and radio frequency technologies enabled accurate distribution of goods. Cross-docking also helped Wal-Mart to reduce inventory storage costs. It also helped to cut down the labor and other handling costs involved in the loading and unloading of goods.

QUESTIONS FOR DISCUSSION: 1. Wal-Mart has been able to achieve respectable leadership in the retail industry because of its focus on supply chain management. Discuss in detail the distribution and logistics system adopted by WalMart. 2. The use of innovative information technology tools had benefited Wal-Marts supply chain management. In the light of the above statement, briefly explain how IT benefited Wal-Marts logistics and inventory management. 3. What were the supply chain management processes adopted by WalMart and how far were they effective? Discuss. 4. What was the nature of benefits derived by Wal-Mart from the efficient supply chain management practices and how far it has contributed to its sustainable competitive advantage? Explain.

1 The time taken for goods to reach Wal-Mart stores from the place of manufacture. 8

Wal-Mart's Supply Chain Management Practices

EXHIBIT I WORLDS 25 LARGEST RETAIL COMPANIES BY SALES (2002) Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Company Name Wal-Mart Carrefour Ahold Home Depot Kroger Metro AG Target Albertsons Tesco Sears, Roebuck Safeway Costco Rewe Gruppe ITM Enterprises J.C.Penny Aldi Gruppe Edeka Gruppe (incl. AVA) J Sainsbury PinaultPrintempsRedoute Walgreen Leclerc Auchan Tengelmann Gruppe CVS Lowes Country U.S. France Netherlands U.S. U.S. Germany U.S. U.S. U.K. U.S. U.S. U.S. Germany France U.S. Germany Germany U.K. France U.S. France France Germany U.S. U.S. Sector Discount Store Hypermarket Supermarket/Hypermarket Home improvement Supermarket Diversified Discount Store/Department store Supermarket Supermarket/Hypermarket Department store/General merchandise Supermarket Wholesale club Diversified Diversified Department store/Drug store Food/Discount store Diversified Supermarket/ Hypermarket Diversified Drug store Diversified Hypermarket/ Diversified Diversified Drug store Home Improvement 2001 Sales (in mn Dollars) 217,800 67,721 64,902 53,553 50,098 48,264 39,175 37,931 37,378 35,847 34,301 34,137 33,640 32,922 32,004 30,000 29,392 27,121 27,079 24,623 24,195 23,478 23,393 22,241 22,111 Rank by Market Cap. 1 6 12 2 13 32 5 20 9 14 15 11 P P 48 P P 25 27 3 P P P 18 7

Source: www.chainstoreage.com

Note: *P: Privately owned All amounts are in millions of U.S. dollars, using the average 2001 exchange rates. All data is corporate level for retail-diversified companies, excluding VAT and non-retailing revenue when available. The different businesses of Japanese Conglomerates are accounted for separately.

Wal-Mart's Supply Chain Management Practices

EXHIBIT II THE STRENGTH OF WALMART Yearly sales Total employees across the globe Number of stores worldwide Number of Supercenters Number of Sams Clubs Number of new stores opened in 2002 Number of suppliers Number of Wal-Marts in Texas (US) Value of 100 shares of Wal-Mart (as on January 28, 2003) purchased in 1970 @ $16.50 per share Wal-Marts rank/position among all retailers in the US (in terms of grocery sales) Wal-Marts rank in jewellery sales Number of pallets shipped by WalMart truck every week Annual sales of hot dogs by Wal-Mart every year (approx) Percentage of dry dog food bought by Wal-Mart in the US Total occupied floor area of Wal-Mart Percentage of toothpaste bought by Wal-Mart Yearly advertising expenditure Yearly purchase of gold for Wal-Mart by its suppliers Highest one-day sales record till date (November 23, 2001) Number of Learjets owned by Wal-Mart Number of pilots owned by Wal-Mart Number of employees employed by Wal-Mart in China Yearly sales of 850 McDonalds stores that operate inside Wal-Mart stores Number of customers everyday at Wal-Mart stores worldwide Number of every day visitors at Wal-Marts website, walmart.com Number of items stored by a Wal-Mart Supercenters Items stored by walmart.com Estimated market capitalization of Wal-Mart in 2020 $220 billion 1.28 million 4,382 1,060 495 420 30,000 316 $11.5 million 1 1 50 million 70 million 35% 18.3 square miles 24% $498 million 18.4 metric tonne $1.25 billion 18 60 4000 $1.3 billion 15.7 million 4, 50,000 1,00,000 6,00,000 $11.1 trillion

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Wal-Mart's Supply Chain Management Practices

EXHIBIT III PRIVATE FLEET DRIVER HANDBOOK Wal-Mart's Private Fleet Driver Handbook contained terms and conditions with regard to termination of the truck drivers. According to the Wal-Mart's Private Fleet Driver Handbook, a driver could be terminated from his job if he refused to deliver an assignment given to him. However, if a driver refused to deliver the assignment due to fatigue or insufficient rest, the refusal was not considered as a violation. This book included other rules, the violation of which would result in immediate termination of the driver. This book was maintained by Wal-Mart to create awareness about the role, duties and responsibilities of a driver towards the company, society and profession in various situations. The expected actions of each driver and the 'code of behavior' was clearly detailed in this handbook and the driver had to strictly adhere to these rules and regulations. However, drivers were not terminated simply because they violated the rules and terms mentioned in the handbook. The facts, circumstances, situations and other collaborative evidence were taken into account and thoroughly assessed to decide about the termination. When a driver violated a rule or 'code of behavior', he was not terminated immediately, but was first taught the correct code of behavior by Wal-Mart. For example, though the handbook mentioned that drivers had to be very polite and kind while dealing with the store personnel and others, a driver was not terminated for being rude. Instead, he was given a warning and asked to behave properly. He was terminated only when he showed no improvement. The drivers were also required to secure the truck trailers at the time of delivering them to the stores. The inability or failure to do so was not considered as a breach of contract that would result in immediate termination. However, a driver was once terminated from his job (in the year 2000) by Wal-Mart's then Private Fleet Manager, Mr. Paul Darwin, (who took charge in 1998) for leaving a trailer unsecured at one of the stores near a highway. Moreover, according to the rules mentioned in the handbook, the drivers should exchange the truck trailers in a totally 'safe and responsible' manner, so that neither the trailers are damaged during exchange or in transit, nor does it result in any loss to other people in the form of injury, etc. When a driver leaves an unloaded trailer in front of the Wal-Mart store for the store personnel to pick it up, he should ensure that the trailer is properly safeguarded and secured against a closed dock in the store. This would ensure that no other person would gain access to the unloaded trailers. For Wal-Mart, an avoidable accident was a more severe offense than refusing to deliver an assignment for dispatch. Mr. Paul Darwin, the then Private Fleet Manager of Wal-Mart, once dismissed a driver for being involved in an accident that could have been avoided or prevented. However, the driver's dismissal was later withdrawn. Source: U.S. Dept. of Labor, www.oalj.dol.gov

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Wal-Mart's Supply Chain Management Practices

EXHIBIT IV TYPES OF CROSS DOCKING Opportunistic Cross docking In this method of cross docking, exact information about where the required good was to be shipped and from where it has to be procured and the exact quantity to be shipped, was needed. This method of cross docking enabled the company to directly ship the goods needed by the retail customers, without storing them in the warehouse bins or shelves. Opportunistic cross docking could also be used when the warehouse management software, installed by the retailer, alerted him that a particular product was ready for moving and could be moved immediately. Flowthrough Cross docking In this type of cross docking, there was a constant inflow and outflow of goods from the distribution center. This type of cross docking was mostly suitable for perishable goods, which had a very short time span, or goods that were difficult to be stored in the warehouses. This cross docking system was mostly followed by the supermarkets and other retail discount stores, especially for perishable items. Distributor Cross docking In this type of cross docking, the manufacturer delivered the goods directly to the retailer. No intermediaries were involved in this process. This enabled the retailer to save a major portion of the costs in the form of storage. As the retailer did not need to maintain a distribution center for storing various kinds of goods, he helped him save warehouse costs. The lead time for the delivery of goods from the manufacturer to the consumer was also drastically reduced. However, this method had some disadvantages too. The transportation costs for both the manufacturer and the retailer tended to increase over a period of time, when the goods were required to be transported to different locations several times. Moreover, the transportation system had to be very fast. Otherwise, the very purpose of cross docking was lost. The transportation system should also be highly responsive and take the responsibility for the delays in delivery of the goods. The retailer was at a greater risk. He lost the advantages of sharing the risks with the manufacturer. This type of cross docking was suitable only for those retailers who had a large distribution network and could be used in situations when goods had to be delivered in a short span of time. Manufacturing Cross docking In Manufacturing cross docking, these cross docking facilities served the factories and acted as temporary and mini warehouses. Whenever a manufacturing company required some parts or materials for manufacturing a particular product, it was delivered by the supplier in small lots within a very short span of time, just when it was needed. This helped reduce the transportation and warehouse costs substantially. Pre-Allocated Cross Docking Pre-allocated cross docking is very much like the usual crossdocking, except that in this type of cross docking, the goods are already packed and labeled by the manufacturer and it is ready for shipment to the distribution center from where it is sent to the store. The goods can be delivered by the distribution center directly to the store without opening the pack of the manufacturer and re-packing the goods. The store can then deliver the goods directly to the consumer without any further repacking. Goods received by the distribution center or the store are directly sent into the outbound shipping truck, to be delivered to the consumer, without altering the package of the good. Cross docking requires very close co-ordination and co-operation of the

manufacturers, warehouse personnel and the stores personnel. Goods can be easily and quickly delivered only when accurate information is available readily. The information can be managed with the help of Electronic Data Interchange (EDI) and other general sales information.

Do

No 12

tC

op

OPERATIONS AND LOGISTICS MANAGEMENT

Submit: 18/08/2008

TABLE OF CONTENTS

Introduction 03

Executive Summary 04

Operations strategy. 05

Operations competitive dimensions 06

Capacity.. 07

Location.. 08

Total Quality Management. 09

Flexibility 11

Conclusion.. 12

Recommendation 13

References 14

EXECUTIVE SUMMARY

Operations Management is concerned with the managing of resources and activities that produce and deliver goods and services for customers. Efficient and effective operations can provide an organization with major competitive advantages. As competition becomes stronger in a more open and global marketplace, a company's survival and growth become greatly dependent on its ability to run its operations efficiently and to exploit its resources productively. This essay is going to discuss about the relationship between strategy and operation management and further explaining about how the capacity, location, TQM, flexibility and process can add value to the delivery of goods and services.

There are many definitions put forward for the business processes. Business processes can be defined as structured measured set of activities designed to produce a specified output for a particular customer or market (Davenport 1993, P 5). Rosemann (2001, P 18) defines business processes as self-contained, temporal and logical order (parallel and/or serial) of those activities, that are executed for the transformation of a business object with a goal of accomplishing a given task. Business processes is a collection of interrelated work tasks, initiated in response to an event that achieve a specific result for the customer of the process (Portugal and Sundaram, 2005). Processes in the business under taken to achieve particular task that for example producing a particular goods or service for the customer. The result must be countable and identifiable. The business processes is a set of clearly identifiable tasks, executed by one or more actors (person, or organisation, or machine, or department (Portugal and Sundaram, 2005). The business processes helps us to identify various tasks involved in delivering results by the organisation. Business process may be generic or particular to given industry or organisation. Processes are the methods used to convert raw materials and components into products (Hall, 2004). Processes may include, designing, cutting, bending, soldering and polishing. These types of processes are mainly performed using machines and tools.

INTRODUCTION

Business today is set in a global environment. This global environment is forcing companies, regardless to their location or primary market base, to consider the rest of the world in their competitive strategy analysis. Firms cannot ignore external factors such as economic trends, competitive

situations or technology innovation in other countries if some of their competitors are competing or are located in these countries. Nowadays, it is uncommon for a company to develop a new product in the United States, manufacture it in Asia and sell it in Europe. (Gourdin, 2006 P 140)

IKEA offers its customers with wide range of products at reasonable prices so that more and more people can afford them. IKEA produces its own goods as well as buy from other companies. The company follows cost effective process to deliver the best to the customers. Company looks through all the available raw materials available throughout the world and selects the suitable raw material. Company buys its raw material throughout the world and they buy it in the bulk. So that customers can benefit from cost effective production process. IKEA product developers and designers work directly with suppliers to ensure low priced products are produced. IKEA does not favour waste materials in their production process. They reuse every leftover material in one way or the other. IKEA has over 9,500 products under its name (IKEA, 2008). The firm has a total of about 12,000 products in the entire product range. Each store carries a selection of 10,000 products, depending on store size; and the core range is the same worldwide. IKEA has over 200 stores in 30 countries around the world. This requires exceptional logistics and outstanding support staff as well as the best solutions. Europe is IKEA's largest purchasing market. In all, IKEA has 1,600 suppliers in 55 countries, and trades through local IKEA purchasing offices in 33 countries. In order to make sure that the operation management remains intact and at its most efficient level, it must incorporate the best technology and the right people.

OPERATIONS STRATEGY The trend toward an integrated world economy and global competitive arena is forcing companies to design products for a global market, and to rationalise their production process so as to maximise corporate resources. Companies must coordinate their functional activities within a coherent strategy that addresses the global nature of their business. Unfortunately, when it comes to corporate strategy, most operation and logistics functions remain relegated to traditional tactical roles. Top management views operations and logistics as tactical in nature, design strategy without their input and relegates them to a cost-minimising role. There are many reasons for this outdated management attitude, including: The function dominance of certain areas in the formulation of corporate strategy A short-term view of operations/logistics contributions

A belief that operations and logistics are technical specialties and not strategic business functions

Operations strategy is how an organisation expects to achieve its mission and goals. (Heizer, 2008 P 27) IKEA has developed a unique operations strategy which many have tried to follow. It has led to global success and revenues of over 15bn annually and has become the worlds largest furniture retailer. The companys motto is is: "To create a better everyday life for the many people and this leads to principles of good design of everyday things, prices accessible to many and broad distribution of its products. The key elements of the IKEA operations strategy include design, store layout, distribution network, market segmentation and pricing. IKEAs strategy achieves differentiation and cost leadership. The differentiation is in the quality of the design stylish, modern and well-presented in the store and on the website and catalogue and by distinctive branding through blue and yellow flagship stores; cost leadership is achieved by careful management of manufacturing costs including use of off-shoring for markets outside Europe, by flatpack which reduces transport costs and enables self-assembly and by the use of franchised warehouse stores. The store layout strategy is designed to keep shoppers in the store for as long as possible, to maximise buying time; to present furniture as it might be seen in a buyers home; to reduce costs by having a high element of self-service in selecting products and collecting them from the in-store warehouse. The distribution network strategy is to have large stores on the outskirts of cities near public transportation to provide large floorspace at low cost. This allows products to be presented in realistic kitchens, bedrooms etc, give room for the warehouse and for plenty of parking. (Slack, 2007) OPERATIONS AND LOGISTICS DIMENSIONS The logistics system can be divided into two segments which are inbound and outbound logistics. Inbound logistics involves providing all the materials and goods required for making the products and outbound logistics encompasses how the manufactured products move from final assembly through distribution and warehousing to the hands of the customers. Companies cannot isolate the inbound from the outbound segments because it is the overall flow that results in the satisfaction of final customers. However by dividing the logistics system into inbound and outbound, we can charaterise the different trade-offs. (Gourdin, 2006 P 7) The Global logistics framework serves as a tool to optimise and manage material flows. It has three dimensions which are functional, sectorial and geographic. The functional dimension highlights the cross-functional nature of logistics. Most organisations are segmented into specific activity areas e.g marketing, finance, manufacturing. The logistics process cuts across all fuction areas, and so enables the creation of important interfaces. The sectorial dimension, or interfirm integration, refers to the efforts by the supply chain partners to coordinate and manage their activities as a single, unified entry, rather than as separate entities. The main idea is that industrial markets are formed by suppliers and customers or more generally by buyers and sellers. Lasting relationships are beneficial for all parties involved. (Dornier, 1998 P 42)

Finally there is the Geographical dimension of global operations and logistics. Management of global operations and logitics differs from management of domestics operations in several key ways. Firstly there is the need to identify and analyse factors that differ across nations that influence the effectiveness of these functions. Such factors include worker productivity, process adaptability, governmental regulations and issues, transportation availability, culture and many other sources. Secondly because of the distances involved in global operations, transportation and distribution are on greater significance. The overall objective of optimising any logistics system is to maximise profitability. By looking at the relationship among the three dimensions in the global logistics framework, we can identify the best orientation for a given company. We define three basic types of orientations. Resource-oriented logistics Information-oriented logistics User-oriented logistics

CAPACITY PLANNING The word capacity is commonly used to show fixed volume of a container or space in a building. This meaning of the word is also sometimes used by operations managers. For example a pharmaceutical manufacturer may invest in new 1000 litre capacity reactor vessels, a property company purchases a 500 vehicle capacity city centre car park and a multiplex cinema is built with ten screens and a total capacity of 2500 seats. Although the measures tell the scale of operations. They do not reflect the processing capacities of these investments. For finding this a time dimension appropriate to the use of assets should be fixed. (Chambers, 1995 P 322) Many organizations operate at below their maximum processing capacity, either because there is insufficient demand completely to fill their capacity or as a deliberate policy so that the operation can respond quickly to every new order. It is quite often that organizations find themselves with some parts of their operation operating below their capacity while other parts are at their capacity ceiling. It is the parts of the operation that are operating at their capacity ceiling which are the capacity constraint for whole operation. For example a retail super store offers gift wrap service which at normal times can cope with all requests for its services. (Slack, Chambers&Johnston1995 P 322) As far as IKEA store is concerned they are serious about capacity utilisation. They link capacity utilisation with environmental protection. They feel that if capacity utilisation is not done properly. It is the waste of various forms of energy. They also concentrate on environmental protection activities such as replacing PVC in wallpapers, home textiles, shower curtains, lamp shades and furniture. PVC has been eliminated from packaging and is being phased out in electric cables. It also includes minimizing the use of formaldehyde in its products including textiles. producing a model of chairs made from pre consumer

plastic waste. IKEA is also follwing the 21st century brand concepts and products suitable. It has been following Economies of scale in its operations. (IKEA Guide 2008) The important characteristic of capacity planning and control, as we are treating it here, is that it is concerned with setting capacity levels over the medium and short terms in aggregated terms. That is making overall, broad capacity decisions, but not concerned with all of the details of the individual products and the services offered. This is what aggregated means different products and services are bundled together in order to get a broad view of demand and capacity.

LOCATION Location is becoming an important part in business in this globalized world for international companies. The major factors affecting location decisions are market economics, better international communications, more rapid, reliable travel and shipping. Ease of capital flow between countries, high differences in labor costs. Selecting country is the first step in the decision making of location. Once a firm decides which country is best for its location, it focuses on a region of the chosen country and a community. The final step in the location decision process is choosing a specific site within a community. The company must pick the one location that is best suited for shipping and receiving, zoning, utilities, size and cost. When deciding on a location, management may be tempted by an areas low wage rates. However, wage rates cannot be considered by themselves. (Heizer, 2000 P 34) Although wage rates and productivity may make a country seem economical, unfavourable exchange rates might negate any savings. Sometimes, though, firms can take advantage of a particularly favourable exchange rate by relocating or exporting to a foreign country. However the values of foreign currencies continually rise and fall in most countries. Such changes could well make what was a good location in 2003 a disastrous one in 2008. Location costs are divided into two categories, tangible and intangible.

TOTAL QUALITY MANAGEMENT TQM is a philosophy of management that strives to make the best use of all available resources and opportunities by constant improvement. (Hakes, 1991 P 3). In today s global competitive marketplace the demands of customers are forever increasing as they require improved quality of products and services. Continuous inprovement in total business activities with a focus on the customer throughout the entire organisation and an emphasis on flexibility and quality is one of the main means by which companies face up to competitive threats. This is why quality and its management and the associated continuous improvement are looked upon by many organisations as the means by which they can survive in increasingly aggressive markets and maintain a competitive edge over their rivals. The companies that do not manage this change will fail. (Dale, 2003, P 3)

Stage of development Activities Inspection Salvaging, sorting, grading and corrective actions.

Quality control Quality manuals, product testing, basic quality planning, including statistics. Quality assurance Company-wide QC Third party approvals advanced planning, systems audits, SPC. Quality measured in all areas of the firm.

TQM Continuous improvement; involvement of suppliers and customers; employee involvement and teamwork.

Stages of development in quality and related activities, by Brown, 1996, P 190

Although TQM does include statistical process control and other quality tools and techniques, the outermost layer of TQM is often described as being a philosophy. This philosophy has four basic elements: 1. 2. 3. 4. Customer-driven quality Leadership Employee involvement Continuous improvement

Customers entering an IKEA store for the first time know immediately that something is different. Instead of the typical displays found in other furniture outlets, IKEA stores feature carefully laid-out scrip that carries customers from one setting to another, illustrating role that IKEA furniture can play in improving ones home and life. IKEA is able to keep costs and prices down because the company has found ways to redefine the roles and relationships of every participant in the value-added chain. The result is a strategy that focuses on quality at every turn. Customers, by assembling and transporting their own furniture, become participants in the value-creation process rather than consumers of value. IKEA management sees its role as assisting in this value-creation process, not only by scripting the customers new role but also by making it easier for the customer to assume the role. Catalogs and in-store assistants carefully detail the assembly process and free car-top racks are available at every IKEA location. As a result, customer receives a level of quality that in not available elsewhere.

Quality considerations at IKEA actually begin long before the customer arrives in the store. Management has found unique ways of bringing suppliers into the value-creation process as well. IKEA takes enormous care in finding, evaluating and developing suppliers therefore they have a dedicated network of over 1,800 suppliers located in more than fifty countries. Once suppliers become part of IKEAs system, they receive regular technical assistance, leased equipment and advice on bringing their products up to IKEAs exacting world-quality standards and keeping them there. By reinventing the role of suppliers, IKEA is able to systematically reduce the delivered cost of high quality products throughout its global system.

FLEXIBILITY Flexibility is the ability to change "states." Over the last decade, flexibility has been gaining increasing attention in manufacturing, both in research as well as industrial practice. With product life cycles getting shorter and profit margins getting narrower, it has become imperative for manufacturing plants to approach many of their processes from new perspectives. Flexibility represents one of the more important of these perspectives to be taken into account for improving manufacturing performance. To help meet the competitive realities operations managers need to know more about the strategic aspects of manufacturing flexibility. (Gerwin, 1993 P 395) A concept of strategic flexibility in product competition is developed in which flexibility depends jointly on The resource flexibility of the product creation resources available to a firm and The coordination flexibility of the firm in using its available resources in product markets.

Strategic flexibility, then, is the capability of the firm to preach or respond quickly to changing competitive conditions and thereby develop and/or maintain competitive advantage. The rest of this work explains the actions that individually or in combination help firms to achieve strategic flexibility and competitive advantage. There are a number of actions that help firms navigate in the new competitive landscape. In specific, these actions directly or indirectly contribute to the achievement of strategic flexibility and competitive advantage. Among those is exercising strategic leadership which has direct effects on a firm's strategic flexibility and competitive advantage. Strategic leadership also affects these outcomes indirectly through the other major actions of Developing dynamic core competences Focusing and building human capital Effectively using new technology

Engaging in valuable strategies Building new organization structures and culture.

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CONCLUSION Overall, the strategic and operations management is the process of developing plans, policies and allocating resources to achieve organizational objectives. So in reality operation management is combining the various activities of business to achieve organizational objectives. Therefore it can be said that it is the highest level of managerial activity. In this case it is understood that, IKEA faced several problems in managing their operational and strategic management, but later they overcame it by realizing the importance of operational management in a business. Now IKEA is one of the successful companies in the world in managing their operational management. In order to continue this success the company needs the right people and best tools available to ensure a seamless transition and has to be able to resolve any problems as quickly as possible, especially when it is the world's leading home furnishing retailer.

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WEBSITES

www.ikea.com http://www.ikea.com.hk/chi/main.htm http://www.ikea-group.ikea.com/