Supply Chain Strategy of Austral Products Group
This is a case study report of Supply Chain Strategy―Austral Products. The purpose is to evaluate Austral Products’ current logistics and supply chain strategies and practices, review operations of APG group companies and then generate possible changes, adjustments to strategy, structure and systems after analyses and investigations. And, explains the reasons, rationales behind for the recommendations.
This assignment is a realistic exercise of supply chain practices in modern business. It helps to identify embedded problems in logistic operations and devise changes and recommendations to tackle encountered difficulties.
Company Profile: Austral Product Group
Austral Products Group (APG) consists five brand companies producing household commodities. The main market of APG is located alone the southeast coast from Brisbane to Adelaide, plus Perth on the west coast and Auckland in New Zealand. The five brand companies are:
Each company at the Austral Group of Companies operates independently- each product line has its own supply chain and logistics support in terms of procurement, resource planning, distribution and transport. Unlike most companies, APG’s group head office confines itself on the strategic direction and financial matters of the company.
Supply Chain Management
Products reach customers through a chain of retailers, distributors, wholesalers, manufacturers, and component suppliers. Supply chain management is intended to accelerate the flow of goods, information, and capital in both directions, along the chain’s entire length, and to help companies monitor that flow. Because the costs of managing the supply chain–inventory, the warehouse and distribution center, and freight–can represent 10 to 15 percent of sales in most industries (Agrawal and Pak, 2001).
Supply chain management (SCM) is a familiar concept in manufacturing, but companies are just now recognizing the value of successfully implementing it (Cook, Debree, and Feroleto, 2001). Although certain concepts should be applied while successfully managing a supply chain, companies coordinate their individual supply chains in many different ways. “Thus, in application, supply chain management practices exist along a continuum, from more traditional approaches, where the organization focuses only on the direct affects upon itself, to the more expansive, supply chain, channel-wide perspective” (Cooper et al., 1997, p. 68). Table 1 compares the traditional approach to channel management to the supply chain approach (Cooper et al., 1997, p. 69).
An effective supply chain is crucial to the success of a business. (Fisher, 1997, p. 106). This can be illustrated if we consider the traditional view of a supply chain as similar to a pipe that carries the service or product being provided. When the pipe becomes clogged, the entire system must be flushed to solve the problem. Similarly, when a supply chain does not work properly, a business must flush the channel because it cannot pinpoint where the problem is. This causes companies to lose profits and sales.
Now, however, companies such as the Austral Products Group is implementing a new type of supply chain management, where the firm views the supply channel as a whole system instead of concentrating of each part of the process. The company focuses on all efforts, from the procurement of raw materials to the distribution of the finished product, and how each effort relates to the others (Andraski, 1998). This allows more communication to exist within the pipe and problems to be more easily identified.
Recent studies have focused on one important domain of supply chain management: the selection of suppliers (Vokurka, Choobineh, and Vadi 1996). The selection of suppliers is critical to small firms for several reasons. First, the increased trend towards “just-in-time” manufacturing practices has resulted in a supply base reduction (Pearson and Ellram 1995). Second, owing to re source scarcity, there is a need for greater interaction between the buyer and the supplier. Third, many firms involve their suppliers early on in the planning process so that they are able to deliver superior value to their customers (Trent and Monczka 1998). Finally firms have a greater need to gain a competitive advantage by controlling unit costs. Besides investigating what firms actually do in selecting suppliers, prior research has also focused on what firms should do to ensure that their suppliers contribute to the long-term success of their enterprise.
The purpose of this assignment is to build on existing research in the area of supplier selection practices and evaluate the supply chain management of Austral Products Group in terms of its distribution channels, transport services, storage- warehouses and factories, manufacturing process and the innovations within the process, such as IT improvements, organizational structure and the choice of suppliers.
Austral Pharmaceuticals
Austral Pharmaceuticals produces non-prescription products and is the national “own label” chain market in Australia. Products are manufactured in Perth and shipped and distributed by a local logistic company directly delivering to major retail chains on favourable rates. It is looking forward to expand its business to Southeast Asia over the next three years.
Austral Pharmaceuticals has its own label retail chain in Australia. It has also the benefits of owning their warehouse and factory that can lessen the transportation expenses and the convenience of storage. This allows Austral Pharmaceuticals to spend less time on having to transport the products from the factory to storage houses. Moreover, it also allows for a higher degree of monitoring from the management.
Aside from the warehouses owned by Austral Products, it also rents warehouses and storage rooms in cases when New Year and Christmas arrives- the time when the employees are on leave. This allows the management to meet the demands of the market despite the factory is not producing anything for the moment.
From this point, we can see that APG strategically plans its supply and anticipates events that may render them short in supply. Thus, the renting of warehouses and the supply of products in times when there is an expected slowdown of work is properly projected. Moreover, since the product is medicine, the company assures of quality control from the government of Australia.
The supply chain of the Austral Pharmaceuticals is managed by a team of five headed by the General Manager along with the Finance Manager, Human Resource Manager, Manufacturing Manager, IT Manager and the Sales and Services Manager. Moreover, there is a Warehouse Manager that reports directly to the Finance Manager.
In contrast with most Multinational Companies who resorts to multi-tasking, APG has clearly delineated job descriptions allowing for the easier identification of problems and solutions. Multi-tasking among managers while it offers a faster inflow of instructions and saves the company money in terms of staffing, has the disadvantage of lack of focus among the managers. Several times, managers gets a handful of jobs that they can no longer focus on a given task. Thus, the quality of products, services and decisions made suffers in the process.
Moreover, the manufacturing process is batch controlled- meaning that the products are surveyed and evaluated on a timeframe where it is connected with the supply side of the products. Usually, Austral Pharmaceuticals creates long run make-to-order production. This strategy minimizes the machine change over and set up frames of production. This approach minimizes delay in orders since most of the products are already produced as programmed by target orders. Thus, clients are also assured of an on-time supply.
However, one feature of the supply chain that is problematic is the labour intensive production and procurement of raw materials. It is usually the warehouse manager who controls the production planning and procurement. Austral boasts of a strict quality control of their imported raw materials usually coming from the United States and Asia and some materials from the South of Australia. This relationship boasts of a long-term trust and commitment to meet the specified products of Austral’s pharmaceuticals.
In addition, Information technology is also implemented in the company in order to systematize spreadsheets and the company’s database. This allows for a faster retrieval of information across different departments allowing the Head Office Group to peg their financial investment and strategic planning based on the information provided. Austral does not have its own distribution system thus, it has a partnership distribution and transport on Perth that directly supply major retailers of pharmaceutical products.
Kleen Rite
Laundry detergent, scouring powder and dishwashing liquid are the major products of Kleen Rite. Kleen Rite is located in the vicinity of Melbourne. Two small warehouses are leased, one is 25 km from Melbourne and the other one is 200 km north of Melbourne. A family-owned transport company provides hourly-rated service to Kleen Rite customers. The major suppliers of Kleen Rite are in Victoria and Queensland. Close to JIT operation is also implemented in Kleen Rite.
Like Austral Pharmaceuticals, Kleen Rite rents a warehouse where the products are stored- one near the factory and the other one in a rural community. It also rents a distribution and transport firm that brings the products to the major retailers in the country as well as the small and independent retailers. It is labour-intensive despite the improvements made on its information technology system. This is because the change in it’s IT has not been accompanied by changes in the planning and production process.
The raw materials of Kleen Rite came from domestic suppliers while the quality control mainly focuses on the date of delivery of the products. Unlike Austral Pharmaceuticals that tests the raw materials, Kleen Rite concentrates more on the just in time deliveries of materials.
Lord Cosmetics
Lord Cosmetics manufactures personal care products such as shampoo, soap cosmetics. It is located in Sydney with its own national distribution network, intercity and local delivery vehicles and distribution centers and warehouses. However, because of the new development plan from governmental authority, Lord Cosmetics has to move to other places within a reasonable time frame. Lord Cosmetics practices good JIT or almost JIT operations. But one of its key raw material suppliers in Europe failed several times to provide on time, in specification delivery and caused the whole manufacturing line discontinued. Perhaps it is because of the tiny amount of the supplier’s global market share, which cannot draw enough attention from the supplier.
Lord Cosmetics being the biggest product department of Austral Products is managed by several department heads. It also has its own CEO accompanied by the Finance Director, HR Director, Sales and Marketing director and the Supply Chain Director whose responsibilities extends to that of Customer Service, Order Management, Planning, Sourcing and Procurement, Manufacturing, Logistics and IT.
Unlike the other departments at Austral, Lord Cosmetics has its own distribution system consisting of line haul and local delivery vehicles that transports its products to the retailers nationwide. The main retailers of Lord Cosmetics has been supermarkets and department stores including gift shop stores it has recently tied up with. This allows a greater exposure of the products to the consumers since most of shoppers comes to supermarkets and department stores in buying their cosmetics.
Furthermore, the integration of process and planning system within the company has garnered an offshoot in sales and the reduction of 15% inventory on finished goods. However, due to the high standards set up by Lord Cosmetics in their raw materials, few suppliers are able to met such demands. Lord Cosmetics unlike the other departments requires a Just in time Management strategy with an emphasis on the quality control of the supplies. Several suppliers had been terminated because of the failure to meet such requirements. This area is problematic since the supplier shall dictate the quality and supply of Lord Cosmetics in the market. In fact, Lord Cosmetics had shut down five times in the past due to late deliveries.
Flash
Flash is in Brisbane and producing auto care products like polishes, waxes and detergent. It recruits four small transport companies to serve its customers throughout south-eastern Australia. The company has patented a new formula for car body protection recently and expected to introduce to outside of south-eastern Australia as well.
Flash’s organizational structure is along the traditional lines such as those utilized by Kleen Rite. It consists of a Manufacturing Manager, Logistics Manager, Sales and Services Manager and the Finance Manager. In contrast to Lord Cosmetics, Flash’s managers reports directly to the CEO of APG. Thus, it allows for a greater control of main office. This traditional structure however can deter the distribution of goods since the decision still has to come from the top management.
The distribution channel at Flash consists mainly of long-term distributors that have worked with Flash through the years. Unlike the earlier three departments, Flash does not have any quality specifications and or in time procedure. Most of its suppliers are small Australian businesses.
Pure Light
Pure Light has been a part of APG for about 5 years. It is a successful company manufacturing and importing of natural household and personal care products. It is considered to be potential because the popularity of natural and organic products. The low business costs in New Zealand and the CER tariff free agreement between Australia and New Zealand make this company more competitive and promising. It is hoping to explore more business through online joint venture in the future.
Arguably, the most promising department due to the interest of consumers on natural products, Pure Light provides one of the highest profit for the company due to its high sales and relatively lower production cost. As such, it has its own distribution channel like Lord Cosmetics. Furthermore, it has its own warehouse and manufacturing operations.
Analysis and Recommendations
Presently, APG is a group company consists of several brand companies scatters in Australia. Geographically it has companies, warehouses, factories and distribution centers in Sydney, Melbourne, Brisbane, Perth and Auckland. Each brand company has its own factories, logistic channels and transport carriers. They even have fairly duplicate, overlapped managerial structures inside each individual company.
Needless to say, it is money wasting and inefficient. APG should make a full-scale adjustment in structure, logistic strategy, relocation and rearrangement of its factories in order to serve customers better. Integration of current resources and elimination of overlaps are the key issue.
Organizational Structure Change
Currently, each brand company in APG has its own management and operates separately. For example, Austral Pharmaceuticals has a general manager, a finance manager, a human resource manager, a manufacturing manager, an IT manager and a sales/marketing manager.
Similarly, Lord Cosmetics also has supply chain manager, finance, human resource and sales/marketing managers. Same job functions and organizational structures appear in Flash and Pure Light. This phenomenon is totally unnecessary. It has too many overlapped structures. Since the uniformities of household products of APG and most overlapped managers and departments are doing similar jobs. APG should integrate 5 separate management teams and organizational structures into one. One manager in each department is responsible for operations in five companies. The adjustment of structure should be made like figure 3 shows.
Figure3: APG Organizational Structure Adjustment
This structure is leaner, more efficient and most importantly, cost efficiently. APG does not need laminated structure.
Facility Relocation
Each company in APG has its own factory, distribution center, warehouse in most major cities of Australia. Some companies even will be enforced to move by local authorities because of municipal development. Since APG’s markets are contained within 200 kms of the eastern and southern coastline of Australia plus Perth in the west and New Zealand across the ocean. It will be advantageous to move all factories, warehouses, distribution centers etc. to New Zealand for the following reasons:
Cost
Lower business cost in New Zealand is the greatest advantage to APG. Move all facilities from Australia to New Zealand would save remarkable money due to lower cost compared to in Australia.
Tariff-free Agreement Between Australia and New Zealand
Trade between Australia and New Zealand is tariff free under the CER agreement of both governments. Therefore, moving all facilities from Australia to New Zealand will not increase any cost on tariff. APG can use this as a privilege to manufacture products in New Zealand, which enjoys lower costs and then shipping and selling all goods to Australia for greater profits.
Integrate Distribution and Transportation Network
Since Lord Cosmetics has its own national distribution network which consisting of intercity and local delivery vehicles. It is a good idea to expand and enhance this distribution network and its capability for other brand companies. Then terminate the contracts with those small, private and locally operating logistic providers. Strengthen this national network and integrating into one logistic carrier for whole APG members will increase effectiveness and reduce cost further more.
JIT Operations and Integrated Purchase
Some brand companies of APG have implemented JIT or close to JIT operations in supply chain and logistic activities. For example, Kleen Rite measures supplier performance in terms of on time or before the date requested delivery. Lord Cosmetics also intends to practice JIT operation for mechanized production strategy and reduced floor space for storage and raw material awaiting time in spite of some suppliers sometimes cannot meet its requirements. Nevertheless, JIT operation is worth to implement and uplift throughout all brand companies. APG should make continuous efforts to promote JIT strategies and operations for rapid market response and better customer services.
One possible reason of JIT supplies failure may be the APG is barely counted a fraction of its crucial suppliers, because each brand company has its own suppliers and the supply channels have never been integrated. They all operate individually and separately. If APG can unify its purchase actions and integrate all resources to negotiate; APG will gain many bargain chips to have a better deal with its suppliers. Better services, JIT and uninterrupted, reliable, stable and on time deliveries may be achievable from suppliers.
Figure 2 below illustrates the change concept of recommendations.
Conclusion
Modern businesses need streamline and flat type organizational structures for effectiveness and efficiency. Supply chain and logistic management also requires integrated systems and partnerships with suppliers, transporters and distributors.
APG is a group company comprises 5 brand companies producing household products. Since their products, manufacturing processes, materials procurement and market targets have great similarities and organizational structure overlaps. Downsize and trim down the organizations, simplify job functions, eliminate duplications, reduce overlaps and integrate available resources will be the strategy and direction to strive for.
References
Agrawal, M. and Pak, M. (2001) Getting smart about supply chain management. The McKinsey Quarterly.
Andraski, J. C. (1998). Leadership and the realization of supply chain collaboration. Journal of Business Logistics, 19 (2), 9-11.
Cook, J., Debree, K. and Feroleto, A. (2001) From raw materials to customers: Supply chain management in the service industry. SAM Advanced Management Journal, Vol. 66.
Cooper, M. C., Ellram, L. M., Gardner, J. T., & Hanks, A. M. (1997). Meshing multiple alliances. Journal of Business Logistics, 18 (1), 67-89.
Fisher, M. L. (1997, March/April). What is the right supply chain for your product? Harvard Business Review 75(2), 105-116.
Pearson, J.N., and L.M. Ellram (1995). “Supplier Selection and Evaluation in Small Versus Large Electronics Firms,” Journal of Small Business Management 33(4), 53-60.
Trent, R.J., and R.M. Monczka (1998). “Purchasing and Supply Management: Trends and Changes Throughout the 1990s,” International Journal of Purchasing and Materials Management 34(4), 2-11.
Vokurka, R.J., J. Choobineh, and L. Vadi (1996). “A Prototype Expert System for the Evaluation and Selection of Potential Suppliers,” International Journal of Operations and Production Management 16(12), 106-127.
Appendix 1. APG’s Operations
Figure 1 and figure 2 are maps of Australia and New Zealand to demonstrate a clearer picture of geographic location of cities, provinces and areas of APG’s business extent.
Appendix 2. Map of New Zealand
Credit:ivythesis.typepad.com
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