International Operations. A Combination of Business Modelling and Operations Management

Table of Contents

„INTERNATIONAL OPERATIONS“

List of Illustrations

III List of Tables

1. Introduction

2 . Operations Functions and Global Supply Chain of the Lightning GBU
2.1. Overall Assessment and Improvement Recommendations of the Operations Functions
2.1.1. Supply Chain1
2.1.2. Planning Process
2.1.3. Sourcing
2.1.4. Production
2.1.5. Storing
2.1.6. Delivery
2.2. Global Supply Chain Mapping and Types

3 . G lobal Sourcing Strategy for “Emergency Luminaire – injection moulded parts”

4. L ean Manufacturing Principles

5. Shipment Improvements
5.1. Air freight
5.2. Container freight

6. Business Modelling
6.1. Transportation Problem and LP Problem
6.2. Production Problem and LP Problem
6.3. Revenues and Profit
6.4. Additional Questions
6.4.1. Excess Capacity
6.4.2. Rubber Shortage
6.4.3. Dependency on Iron Sheets
6.4.4. Dependence between the demand in Dubai and the production in India
6.4.5. Integer Number of Products
6.4.6. Sensitivity Report for Transportation Problem

7. Conclusion

Bibliography

List of Illustrations

Illustration 1 – A Supply Chain’s most essential components and interdependencies

Illustration 2 – Internal Interfaces managed by a Sourcing Department

Illustration 3 – Comparison of Transport Modes

Illustration 4 – Global Supply Chain of the Lighting GBU

Illustration 5 -. Supply Chain Improvement Recommendation

Illustration 6 - Stakeholder power-interest-matrix

Illustration 7 – Developing a Sourcing Strategy

Illustration 8 – Example: Container Shipment

Illustration 9 – Container Route from Mumbai to Italy

Illustration 10 – Example: Air Freight

List of Tables

Table 1 – Demand and Specification Transparency

Table 2 – Analysis of Competitors and Suppliers

Table 3 – Analysis of the Cost Structure

Table 4 – Requirements and Interests of the Stakeholders

Table 5 – Material Group specific “SWOT” analysis

Table 6 – Summary of Future Sourcing Strategies for “Joint Moulded Parts”

Table 7 – Summary of relevant KPIs

Table 8 – Third-party Logistics (3PL) Services Comparison Chart

Table 9 – Overview of the Shipping Types

Table 10 – Decision Variable of the Transportation Plan

Table 11 – Demand Structure

Table 12 – Shipped Amounts

Table 13 – The Decision Variable of the Production Problem

Table 14 – Material Demand

Table 15 – Material Supply Constraints

Table 16 – Amount sourced in Optimal Solution

1. Introduction

The following term paper provides a theoretical, as well as practical approach to assess Alpha’s complexities occurring in the supply chain. Therefore, in the first part theoretical models are used to solve issues concerning sourcing and supply chain management. Later in the term paper the theoretical adjustments and improvements are combined with a linear programming approach, to create a more practical approach.

2. Operations Functions and Global Supply Chain of the Lightning GBU

2.1. Overall Assessment and Improvement Recommendations of the Operations Functions

2.1.1. Supply Chain

Alpha’s supply chain of their global business unit (GBU) “Lighting” is mainly influenced by the industry characteristics and dimensions of the oil & gas industry, chemicals industry and machine building industry. Recently, especially the downturn of the oil and gas industry leads to financial pressures. In general, their supply chain contains of the following departments:

- Development Department
- Procurement/Purchasing Department
- Manufacturing Department
- Sales Department
- Logistics Department

The following “Illustration 1” briefly provides an overview of the most essential components of a firm’s supply chain:

Illustration 1 – A Supply Chain’s most essential components and interdependencies

Abbildung in dieser Leseprobe nicht enthalten

Source: (Kummer, Jammernegg, & Grün, 2009)

Surely, “Illustration 1” only constitutes a very standardized version of a supply chain, which typically contains of different components and structures from company to company. Nonetheless, it is a good starting point for identifying the perfect supply chain for Alpha. Nowadays, supply chain management can deliver the biggest cost savings and the highest potential for profitability increases among all departments.

As it can be seen in “Illustration 1”, Alpha’s components of its supply chain mostly fit with those illustrated. It can be assumed that the development and manufacturing department are combined in the production department. Solely, the logistics department is only mentioned briefly, even though it is a very important component and significantly contributing to a customer’s satisfaction. Furthermore, Alpha’s supply chain doesn’t consist of a company-internal waste management or an outsourced version. Nevertheless, a waste management department is of more importance for companies working with highly health-frightening substances on a daily basis.

Alpha is an internationally operating company and so is their supply chain. The firm contains of two manufacturing locations, one in Germany and one in India. The German plant mainly manufactures products for Europe, the Middle East and Africa (EMEA). Simultaneously, Alpha’s Indian production location serves the Asian market. In order to get a tighter connection to their customers and achieve higher margins, Alpha recently dismissed all their intermediate dealers. This strategical adjustment provides them with the opportunity to bring their company closer to the customer and to achieve a deeper insight about their behaviors and needs, by simultaneously accomplishing some financial benefits.

Moreover, the procurement and purchasing department constitutes a very important part in the supply chain. As displayed in “Illustration 1”, these departments directly collaborate with suppliers and enable the production to start, independently if you are talking about first, second or third tier suppliers. Considering that, Alpha is lacking in successfully collaborating with suppliers, which depicts an important improvement field to benefit from cost savings and new technologies. A more detailed improvement recommendation is going to be outlined in “Chapter 3”.

Due to the fact, that Alpha’s lighting global business unit serves industries, which are exposed to highly explosive working environments, an additional department covering the topic customer service, would lead to an increase in operational diversity and performance. For products directly influencing and contributing to occupational health, safety at work as well as to the safety of employees, an experienced and reliable customer support before, during and after the installation of an explosion protection system can be very valuable.

2.1.2. Planning Process

Alpha’s planning process is conducted very purely. They are mainly concentrating on differentiating their customers into specific segments by describing their buying habits and behaviors, which is one essential part of a reliable and meaningful planning procedure. The identified customer segments are listed in the following:

- Centralized buying
- Decentralized buying
- Original Equipment Manufacturer (OEM)

The purpose of customers conducting centralized buying as well as product standardization is to contribute to decreasing procurement spent. Furthermore, the customer segment centralized buying is concerned about long-term supply continuity.

Customers with a decentralized buying approach see high importance in their products’ adaptability to local needs and circumstances.

Ultimately, the Original Equipment Manufacturer acquires Alpha’s lighting to manufacture complete modules for the oil industry. Therefore, an OEM is the customer type requiring special treatment and an engineering team to individually develop their lighting solution.

All in all, the “Lighting GBU” depicts 4.500 out of 11.500 customers in total globally. As conveyed, Alpha uses a “Behavioral Segmentation” approach in terms of their customers, which is based on their buying and operating behavior. This simplified approach doesn’t cause lacking in predictive value and simultaneously achieves a closer alignment to actual needs.

Nonetheless, analyzing and understanding a customer’s needs and desires doesn’t lead to a detailed planning process. Moreover, industry characteristics need to be taken into consideration. As mentioned earlier, the “Lighting GBU” serves in three different industries. Especially the machine building industry needs a high degree of customization, while the oil and gas industry is influenced by high fluctuations in prices and demands, making the industry some time more and some time less financially liquid. Furthermore, the product life cycle differs from industry to industry, as well as the circumstances the Lighting are exposed to, in terms of differing temperatures or working hours.

Hence, in order to outline a specific and reliable planning process many more factors have to be taken into consideration. In that case, a collaborative planning approach can be very valuable. This type of a cooperative planning approach combines suppliers and customers. By the usage of a unique information platform, the following planning areas can be covered and a reliable planning process guaranteed:

- Market Planning
- Procurement Planning
- Production Planning
- Warehouse Planning
- Transportation Planning

2.1.3. Sourcing

Alpha’s sourcing strategy is build on two different pillars. Firstly, they concentrate on a high degree of internal vertical integration. Vertical integration is a strategy acquiring business operations within the same production vertical that helps reduce costs and increase efficiency by decreasing transportation expenses cf. (Investopedia, investopedia, 2018). This goes in line with the temporary goal of Alpha to improve the profitability by cost reductions.

Alpha is trying to produce most of their materials by themselves, in order to keep the buying from external partners to a minimum. Even if it would be more cost efficient to buy it from external partners, Alpha sticks to their strategic sourcing plans.

They believe to be forced to concentrate on vertical integration, due to the manufacturing disposing of all the company’s operational power.

Illustration 2 shows the internal interfaces managed by a sourcing department:

Abbildung in dieser Leseprobe nicht enthalten

Source: (Burt, Dobler, & Starling, 2003, S. 42)

Therefore, it gets clear that the sourcing department contains the central function in a company by controlling the materials and their quality. Hence, it is directly influencing a firm’s production. In the case of Alpha, it needs to be put more emphasis on an appropriate overall sourcing strategy, as well as fitting material group strategies, aligned to the company’s strategic directions. A more detailed improvement recommendation is going to be outlined in “Chapter 3”.

2.1.4. Production

As already mentioned, Alpha consists of two factories, one in Germany and one in India. Most of the manufacturing process is executed in the Indian factory and shipped to Germany afterwards, where just a few components are produced. Ultimately, the final assembly is customized, containing the installing of different cable inlets, the power transformer and as the final step the reflector, the lamp and the cover.

Depending on the factories’ production capacity and logistics capabilities, it should be taken into consideration, if implementing two end-to-end productions, one for the EMEA market and one for the Asian market can lead to cost reductions. Even tough, their strategical direction of high internal value creation to reduce transportation cost contradicts their production processes, by conducting the final assembly only in Germany and producing huge amounts of components in the Indian Factory.

2.1.5. Storing

As indicated prior in the section “sourcing”, the storing is impact by the strategic decision to drive high internal value creation and loading their factory in order to achieve a high utilization rate. A high internal vertical integration doesn’t simultaneously lead to huge storing. To continue the thoughts out of Chapter 2.1.4 two individual production processes can contribute from internal value creation. Furthermore, the most essential contribution can be provided by the just-in time (JIT) approach, which is going to be outlined in “Chapter 4”.

2.1.6. Delivery

The delivery performance of the Indian factory reaches up to 80%, which is quite satisfying. Nonetheless, it is unclear if this measurement is reliable due to the issue of contradicting assumptions regarding the baseline of the calculation. However, the German factory only exhibits a delivery performance of 50%. This leads to the assumption that the German Factory struggles to conduct the final assembly on products manufactured in India, which contributes to delayed delivery dates.

Furthermore, Alpha only takes transportation via air freight into account. Considering other types of transportation like water-borne transportation or land transport can lead to increases in delivery performance. For example, railway traffic and inland waterway have a much shorter transport time, while air freight has by far the longest transportation time, as indicated in the following Illustration 3:

Illustration 3 – Comparison of Transport Modes

Abbildung in dieser Leseprobe nicht enthalten

Source: (Pfohl, 2004)

A more detailed analysis about possible shipment improvements is going to be outlined in “Chapter 5”.

The existing issues regarding the reliability of measurements hints at another issue. Alpha and especially the “Lighting GBU” seems to lack in controlling functions to reliably measure a company’s success or weaknesses.

2.2. Global Supply Chain Mapping and Types

Illustration 4 shows Alpha’s Lighting GBU’s global supply chain.

Illustration 4 – Global Supply Chain of the Lighting GBU

Abbildung in dieser Leseprobe nicht enthalten

Source: own illustration

As mentioned earlier, the major part of the component production occurs in the Indian factory. As illustrated, the production relation of the two factories is assumed to be 70% versus 30%. The final assembly and customization is executed in Germany. Therefore, Alpha’s logistics towards their customers start in Germany, from where they deliver their global customers via air freight, as already heard in the prior chapter.

In general, Alpha’s “Lighting GBU” doesn’t contain of a specific supply chain type. This comes from, that none really cared about supply chain management in the past, as indicated in the case study. Regarding that, Alpha’s supply chain can be allocated to a combination of a lean, dynamic and campaign supply chain type and requires of no uniqueness. The markets and industries Alpha is serving with their lightings are characterized by rather predictable supply and demand conditions, which would allocate Alpha’s supply chain to the lean type. Furthermore, Alpha’s supply chains consist of fewer processes, as observable in “Illustration 4”, which is a component of the dynamic supply chain type. Alpha and especially the “Lighting GBU” emphasizes own-value creation, simple logistic networks, by only using air freight, and recently even dismissed all intermediate dealers to achieve a better customer insight and higher margins. Additionally, the latter contributes to establishing short response times towards their customers. Nonetheless, their orders can be characterized as a project type of order. This is what allocates their supply chain to the campaign type, which is characterized by deliveries to project site on time cf. (Gattorna, 2003, S. 32); (Gattorna, 2006, S. 41)

Due to the recent debate about export and import tariffs, a restructuring of Alpha’s supply chain is more necessary than ever. Therefore, to conduct the final assembly and customization can provide the company with the opportunity to circumvent some of these tariffs, as well as to elude high transport cost. Furthermore, this kind of restructuring can lead to an increase in customization quality by concentrating on regions with similar culture, behaviors and needs. Due to cheap production costs in India, this does not require to increase the production capacity of the German factory, for the reason that it would still be cheaper to ship the produced components to Germany, than producing it there.

Moreover, a regional customer service and aftersales department is recommendable to be incorporated. Due to fact, that the lighting is used in working environments requiring the highest degree in terms of safety and reliability, these additional departments would be a valuable asset of the supply chain and increase customer’s satisfaction and loyalty.

Additionally, a regional sourcing department should be incorporated. This addition can provide Alpha to stay internationally competitive by exploiting cost savings through purchasing components from external suppliers.

This leads to the following Supply Chain Mapping in “Illustration 5”:

Illustration 5 -. Supply Chain Improvement Recommendation

Abbildung in dieser Leseprobe nicht enthalten

Source: own illustration

As it can be seen, there were no improvements regarding the shipping type. These logistical issues are going to be covered precisely in “Chapter 5”.

3. Global Sourcing Strategy for “Emergency Luminaire – Injection Moulded Parts”

After elaborating a total cost of ownership (TCO) evaluation of the “Emergency Luminaire”, the “Injection Moulded Parts” are identified as the largest material group.

In the following, a global sourcing strategy for the material group “Injection Moulded Parts” is going to be outlined. Developing and executing a material group strategy contains of the four steps “Analysis”, “Planning”, “Definition” and “Implementation” cf. (Buesch, 2014, S. 203). The first component of the step “Analysis” is to get an overview of the internal requirements by emphasizing business needs, quality and usage of the material group. Hence, a detailed analysis of the demand and specification transparency of “Injection Moulded Parts” is outlined in “Table 1”.

Table 1: Demand and Specification Transparency

Abbildung in dieser Leseprobe nicht enthalten

Source: own illustration

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