Operations management in a Global Supply Chain
Abdullatif Jameel Company (ALJ) distributor for Toyota and Lexus in the Kingdom of Saudi Arabia. Toyota holds a dominant market leadership position within the Kingdom and sold over 350,000 new vehicles yearly. ALJ supports widespread for Toyota in the Saudi market through an extensive network of sales and maintenance centers strategically distributed throughout the Kingdom of Saudi Arabia and touches the lives of people around Saudi Arabia. The main customers of ALJ are the users of Toyota and Lexus vehicles in Saudi Arabia. The order qualifiers are the vehicles availability, spare parts price and availability and the after sales operation. The order winners are the Diversity of vehicles which suites all types of customers, vehicles quality, after sales operation from spare parts availability, high skills maintenance team working in a high standard workshop and a very strong customer relation team.
Supply Chain and operation management:
Supply chain was defined as it is the structures, activities and operations which are connected via product and information flow from source to customers (Helmut and et al., 2015). Good relationship between the company and its supply chain one of the factors of the organization sustainable business success (Thao and et al., 2011). Supply chain management defined by Zacharia and et al., (2014) as it is the set of systems used to efficiently combine suppliers, manufacturers, warehouses and stores so that the goods are produced at the right quantity at the right time to minimize costs and satisfying service level requirements. Supply chain management has improved from the budding field of study to encompass construction (Helmut and et al., 2015). Supply chain management is a very important tool for the cost reduction of operation by avoiding useless activities (Thao and et al., 2011). Any successful supply chain has to make strategic choices according to its competitive priorities, as example if it’s targeted customers cares about cost it should be its first choice, but if the innovativeness is more important so it should be its first priority, so prioritization is very important (Saarijarvi and et al., 2012). Good designing of supply chain strongly affect its performance that embraces the decisions related to the amount of capacity, number and location of production facilities, the mission of each market region and supplier selection for sub-assemblies (Corominas and et al., 2015). Companies should give more interest to supply chain efficiency during designing stage because the big amount of supply chain costs are determined during the designing stage, So it is very important to concentrating on the factors which affecting it like distribution of facilities, the distance between the sales warehouses and sub suppliers and distance between the sales market and supply chain as many suppliers prefer to locate in the neighborhood of the distribution area (Lichocik and Sadowsk, 2013). There are many factors should be considered during the supply chain design process which are the targeted market, the number of distribution centers and its place, suppliers selection, the type of products which will be stocked in each location and the transportation method (Corominas and et al., 2015). Any organization seeking for winning competition in the market place must concentrate on customer requirements and search deeply to catch their needs, these requirements must be translated into objectives for operations also, the organization should be focused on how to make customers and how to keep them and earn their loyalty so it should work in the direction of high quality products with lower cost and with high responsiveness (Thao and et al., 2011). Just in time concept is a very important tool to eliminate waste and give competitive advantage at the supply chain level, it means produce what you need at the time you need with the quantity you need (Green and et al., 2014). An effective supply chain should be concentrating on many aspects such as ensuring the economic cost of the chain, reducing processes and good preparation for the stores as the goods should be labeled and well-known location to reduce time taken to get it when requested, and by this way insuring time saving, high quality of services and dependability (Lichocik and Sadowsk, 2013). The concept of order qualifiers and order winners appears to draw a link between the manufacturing strategies and marketing, OQ are the factors that must be available for a company to qualify as a competitor in the market place and OW are the product and services features that win the orders, OQ/OW concepts are very important criteria to identify market so the first step to develop any supply chain strategy is to fully understanding of the OQ/OW criteria (Godsell and et al., 2011). Competitive priorities are the targets which the organization sets to compete in the market place, and also, it is the way which the organization choose to compete in the market place, it plays a very important role in the operation management process because it includes many aspects which are important from the customers point of view like cost, quality, delivery, flexibility and speed (Ahmad and Schrooder, 2002). Cost efficiency is reducing the sold goods cost by reducing the cost from the operation, Quality is focusing on the quality of goods and services throughout the supply chain on a continuing basis, delivery means on time delivery, flexibility is how quickly is the supply chain react with the unexpected changes like major changes in customer needs (Saarijarvi and et al., 2012). The main role of supply chain management is to ensure high customer service and on time delivery with minimum inventory (Thao and et al., 2011). It is so clear that performance measurement in the supply chain is very important as it will lead to supply chain excellence and supports the organization to achieve its business goals by helping it to know the weak and strength points, performance and efficiency which will guide management to take actions to reduce the gap between the current status and strategic notion (Lp; Chan and lam, 2011). Supply chain management aims to enhance the firm performance through reducing waste to minimum level, firm performance depending on interlacing of competitive strategies throughout the supply chain (Green and et al., 2014) Supply chain strategies are driven by products and because there are many product types it should be different supply chain strategies by assigning different order winners and order qualifiers criteria for each of these products and supply chain strategy competition (Godsell and et al., 2011). The five key performance objectives are cost, dependability, speed, flexibility and quality while the six basic KPI’s in the performance measurement are effectiveness, efficiency, productivity, quality, innovation and profitability (Lp; Chan and lam, 2011).To enhance cost efficiency of supply chain, there are four main key drivers, which is Physical network, inventory control, transportation, and information system (Thao and et al., 2011).
ALJ supply chain and operation management:
It is not easy to compete in a market such as the Saudi Arabia market in the Automobile field as the people there are fond of cars and caring about all the details. As mentioned above any successful organization should care about how to gain customers. Behind this success great supply chain its mission to continuously provide competitive supply-ability advantage by fulfilling the aspirations of our Stakeholders (guests / shareholders / community / associates). And its values are process oriented working environment, sustained Kaizen activities, the highest guest delight index and respect of people.
ALJ operation management and five perspectives:
Service Quality, one of the most order winners which allow ALJ to exceed 40% market share, on time delivery, spare parts availability and high skilled staff with a very strong guest relation team. With offering more than twenty types of vehicles from the sedan, 4*4 vehicles and trucks ALJ showing more Flexibility to its customers by covering all customers’ demands. On time delivery and availability of vehicles expressing ALJ Speed. ALJ customers feeling the meaning of dependability as they can found ALJ centers everywhere with 46 service branches all over the kingdom and more than 18 sub-dealers also, there are more than 97 spare parts shops and hundreds of sub-dealers. Reducing cost/vehicle is one of ALJ supply chain missions to reduce the total supply chain Cost.
ALJ operation management missions and KPI’s:
As mentioned above, the performance measurement is very important so it was a must to identify the supply chain division’s missions and it’s KPI’s to give a clear picture to supply chain managers about the performance and the action needed for improvement. ALJ supply chain division consists of traffic operation center, stock management center, Delivery management center and Quality assurance & logistic development. The traffic operation center mission is Increasing reliability of local transportation which should lead for better local delivery lead time and also, to Create bigger transport scale of economy, which should lead to less transportation cost, its macro KPI’s are transportation cost/vehicle, the availability of trailers and transportation lead time. Stock management center mission is handling vehicles operation (Receiving, Accessorizing, Storage and Dispatching) and to deliver the right vehicles with high quality in the right time to the right destination with the Optimum use of resources, it’s macro KPI’s are on time delivery, the process lead time, overall productivity and frozen stock. Delivery management center mission is to serve as communication window among SC pillars and sales channels, and to Capture Sales Channels expectation and align all supply chain pillars in order to deliver the same and it’s macro KPI’s are on-time dispatch of vehicles from regional stock yards. Quality assurance and logistic development mission is to develop and maintain a world-class quality system in coherence with Toyota Standard by ensuring efficient monitoring to SOP-Manual and by Implementing proactive quality improvement solutions, and it’s macro KPI’s are to establish and document 100% SOPs, Kaizen activities and quality monitoring.
Vehicles Logistics flow:
Domestic Automobile operation imports all vehicles through Jeddah Islamic port from many destinations Japan, Australia, Thailand, Indonesia and USA. After finishing the receiving operations, all of the vehicles transfer to the main stockyard which located just south of Jeddah. This stockyard has a storage area 750,000 square meters out of total area 1,800,000 square meters and 68,000 vehicles stocking capacity, this location served ALJ group and independent dealers, this location distributed vehicles to western region , northern region centers and to the other two big stockyards in the eastern and central regions which are responsible for distributing vehicles to its regions centers.
ALJ Supply chain delivery improvement:
Kaizen is a Japanese word means continues improvement, this is the slogan of any department in Toyota series and for sure in ALJ. As ALJ seeking for the ultimate customer satisfaction and as per its chairman instruction that ALJ already exceed the customer satisfaction level and transferred to the notion of Guest delight it was a must to improve the supply chain by the way that commensurate with this trend. ALJ established to check what is the main negative feedback from its customers, and it found that a lot of complaints coming because of delay in delivery so the supply chain managers start to think about the reasons which causing this delay and also, make analysis about the highest numbers of complaints coming from which regions. The results appears that the regions which have no stockyards showing high numbers of complaints regarding the long lead time and that was because of the long distances between Saudi Arabia cities which reach the number of 3000 KM between the northern and southern regions. As mentioned above, the supply chain prefer to be near to the distributers, so the solution is to be closer to the distribution centers, the big problem appears in the regions which don’t have a stockyards as the vehicles transferred from Jeddah when requested and actually, it takes long time and also, increases the cost of the vehicle as we have to transport it one by one, to reduce this lead time and also the cost of the vehicle the solution was to build a stockyard inside every region, these stockyards will receive the vehicles from the main stockyard in Jeddah and it will be responsible for distributing the vehicles to the centers when requested, and to be more close, it will be small stockyards between the cities for remote areas to supply the remote centers, by this way the lead time will be reduced. May be it will touch on the mind that there is no need for these numbers of stockyards as it is increasing the cost of supply chain, but if you know that every region sells around 300 vehicles per day it will draw the picture about the sales volume and the importance of these stock yards on the level of lead time and also, on the level of transportation cost which will increase the cost per vehicle and this all will reflect the unit sales price and speed of delivery which are very important to customers.
ALJ flexibility improvement:
Because of the drop in the fuel price which impact the economy of Saudi Arabia as it is the main resource for the Kingdom of Saudi Arabia, So the Saudi government took some austerity actions, one of them the removal of subsidization on petroleum products and within few days the fuel price increases by the double. The people in KSA used to buy high performance motors regardless its fuel consumption because of the low fuel price which is the lowest in the world, but for sure after this increment we can expect change in the customers’ demands, ALJ expected severe change in customer demands as the high consumption fuel vehicles will be not desirable like before and quick actions must be taken to avoid drop in sales, the first action taken is to launch a sales campaign on the high consumption fuel vehicles like the SUV vehicle starting from a special discount up to offering free services with each new sold vehicle , but it is not enough we have to be found more creative solutions and the action should be quick to send a message to our valuable customers that we are available at all conditions and we know exactly what you need. After two months from increasing the fuel prices, ALJ launches the new Hybrid vehicle Toyota Prius, this is the first hybrid vehicle entering to KSA market on the level of small passenger vehicles and also, its price suitable for a wide range of customers, this vehicle contains an electric motor beside the normal engine which allow it to run for 26 KM by using only one liter of fuel, by this fuel economic consumption rate ALJ shows more flexibility to customers and also, expressing the high response to the change in market demand.
Ahmad, S. and Schrooder, R. (2002) Dimensions of competitive priorities: Are they clear, communicated and consistent. The journal of applied business research. 18(1), pp. 77-86.
Corominas, A.; Mateo, M.; Ribas, I. and Rubio, S. (2015) Methodological elements of supply chain design. International Journal of production research. 53(16), pp. 5017-5030.
Godsell, J.; Diefenbach, T.; Clemmow, C.; Towill, D. and Christopher, M. (2011) Enabling supply chain segmentation through demand profiling. International Journal of physical distribution & logistics management. 41(3), pp. 296-314.
Green, K. and et al., (2014) Total JIT and its important on supply chain competency and organizational performance. International Journal of production economics. 147(1), pp. 125-135.
Helmuth, C.; Craighead, C.; Connelly, B.; Collier, D. and Hanna, J. (2015) Supply chain management research: Key elements of study design and statistical testing. Journal of operation management. 36(1), pp. 178-186.
Thao, A. and et al., (2011) Supply chain management: Success factors from the Malaysian manufacturer’s perspective. African Journal of business management. 5(17), pp. 7240-7247.
Lichocik, G. and Sadowsk, A. (2013) Efficiency of supply chain management strategic and operational approach. Log forum. 9(2), pp. 119-125.
LP, W.; Chan, S. and Lam, C. (2011) Modeling supply chain performance and stability. Industrial management and data system. 111(8), pp. 1332-1354.
Saarijarvi, H.; Kuusela, H. and Spence, M. (2012) Using the pairwise comparison method to assess competition priorities within a supply chain. Industrial marketing management. 41(4), pp. 631-638.
Zacharia, Z.; Sanders, N. and Fugate, B. (2014) Evolving functional perspectives within supply chain management. Journal of supply chain management. 50(1), pp. 73-88.
- Quote paper
- Mr Mohamed Radwan (Author), 2016, Operations management in a Global Supply Chain, Munich, GRIN Verlag, https://www.grin.com/document/424828