Dynamic Simulation and SCM in the Beverage Industry
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Dynamic Simulation and SCM in the Beverage Industry

This paper briefly discusses how dynamic SCM plays an important role in the present competitive market by explaining the objectives, process view, drivers and causes of Supply Chain Management (SCM) by taking example of a Beverage industry. It also provides the methodology of supply chain of Coca- Cola, HCCBPL (Hindustan Coca Cola Beverages Pvt. Ltd.) using the SAP system which has diagnosed problems and evaluated possible solutions, optimizing the operations and mitigating the risk factors. The paper would conclude highlighting the roles and dynamics of SCM by illustrating the role of SCM in HCCBPL making it the top notch entity in the BEVERAGE industry world wide.

SCM is described as the "design, plan, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand, and measuring performance globally.

The key process of dynamic supply business processes involves:

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 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. The 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. 

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 narrower. According to experts, internal measures are generally collected and analyzed by the firm including

 

BEVERAGE INDUSTRY IN INDIA: A BRIEF INSIGHT

 

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 This movement has been particularly evident in logistics where the provision of transport, warehousing and inventory centrally, with the monitoring and control of supplier performance and day-to-day liaison with logistics partners being best managed at a local level.

  1. Cost
  2. Customer Service
  3. Productivity measures
  4. Asset measurement, and
  5. Quality

 

FIGURE 1: BEVERAGE INDUSTRY IN INDIA

In India, beverages form an important part of the lives of people. It is an industry, in which the players constantly innovate, in order to come up with better products to gain more consumers and satisfy the existing consumers.

 

 

 

 

The beverage industry is vast and there various ways of segmenting it, so as to cater the right product to the right person. The different ways of segmenting it are as follows:

  • Alcoholic, non-alcoholic and sports beverages.
  • Natural and Synthetic beverages.
  • In-home consumption and out of home on premises consumption.
  • Age wise segmentation i.e. beverages for kids, for adults and for senior citizens.
  • Segmentation based on the amount of consumption i.e. high levels of consumption and low levels of consumption.

If the behavioral patterns of consumers in India are closely noticed, it could be observed that consumers perceive beverages in two different ways i.e. beverages are a luxury and that beverages have to be consumed occasionally. These two perceptions are the biggest challenges faced by the beverage industry. In order to leverage the beverage industry, it is important to address this issue so as to encourage regular consumption as well as and to make the industry more affordable.

The objectives of SCM in Beverage industry:

  • Enhancing Customer Service
  • Expanding Sales Revenue
  • Reducing Inventory Cost
  • Improving On-Time Delivery
  • Reducing Order to Delivery Cycle Time
  • Reducing Lead Time
  • Reducing Transportation Cost
  • Reducing Warehouse Cost
  • Reducing / Rationalize Supplier Base
  • Expanding Width / Depth of Distribution

Four strong strategic elements to increase consumption of the products of the beverage industry in India are:

  • The quality and the consistency of beverages needs to be enhanced so that consumers are satisfied and they enjoy consuming beverages.
  • The credibility and trust needs to be built so that there is a very strong and safe feeling that the consumers have while consuming the beverages.
  • Consumer education is a must to bring out benefits of beverage consumption whether in terms of health, taste, relaxation, stimulation, refreshment, well-being or prestige relevant to the category.
  • Communication should be relevant and trendy so that consumers are able to find an appeal to go out, purchase and consume.

The beverage market has still to achieve greater penetration and also a wider spread of distribution. It is important to look at the entire beverage market, as a big opportunity, for brand and sales growth in turn to add up to the overall growth of the food and beverage industry in the economy.

The beverage SCM processes including:

  • Demand planning: forecasting of finished goods, forecasting of empties, planned empties returns, promotions and seasonal effects.
  • Supply network planning: Match demand with supply network (i.e., network capacity plus planned stock plus service levels).
  • Production order/distribution of scheduling.
  • Transportation planning/vehicle scheduling:

Route optimization and vehicle capacity optimization. Creating a new, adaptive supply chain is essential today, when companies are competing in a volatile economic environment and are finding it increasingly difficult to forecast the future performance of their business or marketplace. SCM Issues of coke:

The issues of SCM of coke:

  • No proper Distribution Network Configuration: number, location and network missions of suppliers, production facilities, distribution centers, warehouses, cross-docks and customers.
  • No Appropriate 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., owner-operated, private carrier, common carrier, contract carrier, or 3PL).
  • No proper 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.
  • No Adequate 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-in-progress (WIP) and finished goods.
  • No Accurate Cash-Flow: Arranging the payment terms and methodologies for exchanging funds across entities within the supply chain.

SAP, Coca-Cola pact keeps data in perfect harmony

There are two things which are in focus -- how can we get more information about the customer, and how can we offer better services for better customer loyalty? The business is labor intensive, and if you can increase delivery efficiency for the truck driver and get more information out of the transactions taking place, then it's an area for significant growth and cost reduction -- without having an extraordinary growth in their head count.

 

          Handheld Application:

This application was ported on a          different Handheld.

  1. Customer Search by Name and Code
  2. SKU Search by name and Code
  3. Programmable Keys for assigning the popular brand/packs as hot keys.
  4. Automatically Calculates discounts if any for any customers
  5. Calculates Schemes if any for any customers
  6. Coupon Redemptions if any for customers
  7. Provision for taking back Empties (Cases on Loan and Empties Receipt)

       8. Raise Deposit Slip.

       9. Raise Collection Slip

      10. Cola handheld- Print Stock reports, cash/credit sale report, and customer wise sale reports from the handheld for checking by the salesman

      11. Synch Data for updating in the local machine after returning.

The Issues and Challenges conquered by Coke after the SCM Automation are:

 

With the proper rebuilt of strong distribution network, coke established a strong SCM which has rise above the issues and challenges which it was facing early. The minute changes in the distribution system have built strong relation between the B2B of coke by having the proper Distribution Network Configuration, Appropriate Distribution Strategy, and proper Trade-Offs   

Conclusion:

In India, beverages form an important part of the lives of people. It is an industry, in which the players constantly innovate, in order to come up with better products to gain more consumers and satisfy the existing consumers. With the proper rebuilt of strong distribution network, coke established a strong SCM which has rise above the issues and challenges which it was facing early. The minute changes in the distribution system have built strong relation between the B2B customers and coke. Hence, strong SCM leads an organization to be in the top notch in their industry world wide.

Acronyms:

SCM – Supply Chain Management HCCBPL – Hindustan Coca Cola Beverages Pvt. Ltd.

CCI- Coca Cola India,

TCCC – The Coca Cola Company,

SAP- System application Product

EDI- Electronic data interchange

TOFC- Trailer on flatcar

RTM – Route to Market

CRS – Continuous Replenishment system

DAS – Dynamic Automation System

FTL – Full truckload

LTL – Less truckload

WIP - Work-in-progress

COFC - Container on flatcar

JIT – Just In Time

Reference:

 

1) Anon,( 2010),HCCBPL, http://www.thecoca-colacompany.com ( 2009),

2) Anon (2010) ,info , http://www.wikipedia.org (2010)

3) Article issue by Monthly circular for the month of Feb. Hindustan Coca-Cola Beverage Private Limited 

4) Tuck School of Business at Dartmouth (issue no.10885) Available from http://www.google.com

5)  Anon article (2009) Available from http://www.cybernoon.com

 6) ANON (2008) Available from  http://www.ko.com

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