Introduction
According to Taylor (N.d), the logistics can be defined as:
The process of planning, implementing, and controlling efficient, cost-effective flow and storage of raw materials, in-process inventory, finished goods and related information from the point of origin to final consumption for the purpose of conforming to the customer requirements.
Logistics concerns itself with such issues as the movement of the materials as well as the storage of these materials. It is also concerned with carrying out the management of the flow of the information that supports the material flow. The scope of logistics covers the entire supply chain starting from the point from which the raw materials originate to the point at which the final products are consumed. There is need for a single logic to carry out the planning and organizing of the flow of materials all through the supply chain.
The terms supply chain management and logistics management tends to be similar terms. These two terms resemble one another and go together in a way that logistics management is an approach that is systematic and holistic to the carrying out. The management of the material flow as well as the information flow in the entire supply chain from the point from which the raw materials are originating to the point where there is end-user consumption.
Logistics in the supply chain management context is in line with the flowing of goods and services and their integration in the value of the organization to offer high value to the final consumer (Grant, 2010). The environment of the logistics and supply chain management therefore centralizes on delivering goods and services and carrying out of faster reorganizing of a variety of variables of the business in order to ensure delivery in the shortest time cycle possible.
A logistics and supply chain management that is competent will result from a less costly value chain, has qualitative management, and is faster. Such logistics and chain management is the management of the material and product flow from the point of origin to the end-user (Blecker, 2006).
Beginning from the middle of the 1970s, important developments came up in the practice as well as the theory of logistics management. As a result, the level of understanding of the way the supply chain management operates has gone up in the current times as well as the understanding of the way improvement can be carried out on the supply chain management (Carter and Rogers, 2007).
There are two main objectives of logistics. The first objective is to obtain improved customer service and the other objective is to realize cost reduction in the supply chain. Considering customer service, carrying out efficient management of material flow through the supply chain is crucial in acquiring high degree of customer service. Improving logistics can in turn bring in improvement in service, bring in cost reduction, and thus enable the company to acquire a competitive advantage on which exploitation can be carried out as a main element of the marketing strategy.
Considering the second objective, which is cost minimization, the logistics costs in most cases give a representation of an important feature of the total costs of a company. In those business organizations in which there has been poor management of the logistics, in such organizations there is normally a tendency for saving the costs and there is a high likelihood to put their concentration much on the cost reduction objective more than on the customer service performance. Therefore, it is important to note that it is quite crucial to be aware of the customer service that is needed and also for it to be clearly identified and defined and protected before implementing whatever measures in regard to cost reduction. This paper is going to carry out an analysis of the Virginia Valley company in regard to logistics and supply chain management. The current situation is going to be evaluated, the problems in the logistics and supply chain management identified and then the available alternatives will have to be considered./ Following this analysis, the recommendations will be made regarding the best possible measures to be taken to realize sustainable logistics and supply chain management. The benefits of implementing these measures will also be presented.
Current situation
Virginia Valley is a company that deals in food processing. This company is well established and it specializes in smoked hams. The company has been engaging in the supply of its products in the whole of the southern region of California beginning from the 1960s. This company was originally under the ownership and operation of a German immigrant family.
The success of this company is attributed to the smoking process that it employs, which is secret. This secret process facilitates in the coming up with the products that are of high quality and at a premium price. As of the year 2009, this company was dealing with over 400 franchisees and 250 retail outlets.
Even if the company engages in selling, various harmful products, the competitive strength it has lies in one major product line and this product line is the Tender Smoked Honey Ham. This product had sales of $4.35 million in the year 2008. In the year 2009, the sales increased by 25 percent in comparison to the year 2008.
In the year 2009, there was the selling of the Tender honey product for four dollars for each pound to the franchisees as well as the retail outlets. In the year 2010, there are no expectations for the price increases. However, there are expectations of an increase in the sales of 30 percent for this product line in this year (2010).
The smoked harms can stay fresh for a period of two weeks after being refrigerated and they can still be eaten within one week thereafter. However, such characteristics cannot allow the company to take part in speculative production for the reason that the costs associated with refrigeration are high in relative terms. As a result, Virginia Valley Company carries out the shipping of the hams in simple economic order quantities of 600 cases in each order.
The company carries out the coordination of the functions to the distribution center it has. The hams that are smoked and packaged are distributed to the franchisees and the retail outlets on a free onboard or simply referred to as FOB, at the distribution center basis. About 40 percent of the revenue that is obtained from the sales in the year, 2008 can be said to have resulted from the direct variable costs out of which 60 percent of these costs are approximated to be actual harm costs. There are expectations that these costing percentages will hold for the coming few years.
The refrigerated railroad cars that carry smoked hams Virginia to the centralized distribution center in Los Angels, California which is a distance of two thousand six hundred and twenty miles, take about eight days. The commercial vans that are used by a local firm, which serves on behalf of the franchisees and the retailers, take up the hams from the distribution center and distribute them to the several outlets. The average distance these vans move is about 150 miles and each van can have 50 cases of ham. The cost per van on this travel is about two hundred and fifty dollars.
The Tender ham Honey is transported in a case pack that holds twenty-five pounds and the inventory carry costs are twenty percent per annum when expressed as a proportion of the cost of the harm. The costs associated with order processing are approximately twenty-five dollars for each order. The company spends 8 dollars for each one hundred pounds transported in the refrigerated railcars.
Statement of the main issues and problems
This company currently relies on the supply of the smoked hams from its production point in Virginia to the Distribution Center (DC) in Los Angels on the refrigerated railroad cars. From this distribution center, the products have to be distributed to the retail outlets by the use of the commercial vans operated by a local firm on behalf of the franchisees and the retailers. However, such a supply chain can be associated with several problems. Among these problems is the issue of spending much time before the product reaches the final consumer.
Much refrigeration has to be carried out in order to preserve the products so that they can reach the final consumer in an edible condition. The refrigerated railroad cars have to take about eight days to reach the centralized distribution center. From there further transportation has to be carried out to ensure the product reaches the retail outlet.
More so, following this issue of traveling for long distances on roads by the motor vehicles, this brings in another issue. The issue is concerning the environmental concerns. The long distances traveled by these vehicles as they transport the products to the centralized distribution center increases the level of pollution these vehicles cause to the environment. Other than releasing emissions in the atmosphere, which harmful to life, they cause frequent congestion on, the roads, which can still make life of human beings to be difficult. Therefore, following this, there is a great need for the company to carry out sustainable logistics and supply chain management in order to realize efficiency in its operations and high-level performance.
According to Abukhader and Johnson (2004), logisticians are facing several challenges that are stemming from the environmental implications of logistics systems in regard to the need to achieve more natural resources conservation, bringing down the level of emissions as well as material recycling.
According to Boge (1995), there has been an increase in freight transport on roads at a great level in the course of the few decades that have passed. However, in general terms, there is stagnating in the volume of road freight and at the same time there is an increase in the freight transport activity is increasing, that is, the product weight and distance are increasing. This gives an indication that there is transportation of products over long distances
In the current times, there exist limits in capacities, which turn out to be clearly seen in the environmental field in the destroying of the natural resources as well as in the social field seen in the declining quality of life. At the same time, there will be a dramatic increase in the activity of road traffic freight. This is according to the forecast which indicates that the will be an increase in the total volume by over seventy percent in a country like Germany (Boge, 1995).
There are several effects associated with product-related distance. Large trip segments have many problems not just for the manufacturer in time to come but for the current natural and social environment as well and most especially in the cities. In a simultaneous manner, the consumer behavior offers support to the pattern towards bringing up the level of freight transport on roads (Boge, 1995).
How reliable and rapid the essential goods for production are carried on the roads is as well dependent on the density of the motor vehicle on the roads used. Moving for long distances indicates more risks for the supplies that are reliable. There is a high likelihood that such risks might increase even the more in time to come for the reason that the vehicle density is raising up. There is overloading of the roads in the course of the peak times.
The higher costs of transport, which rely heavily on the fuel costs that are high, have impacts that are considered on the manufacturers’ internal costs. With the rise in the fuel costs in which there is internalization of the external costs to the optimal level possible, the total transport costs would increase. The consumption of the energy resources, emission of the pollutants, and the natural environment impacts that originate from road freight traffic imply the rising utilization of the natural resources on an increasing level as well as the degradation of the environment on a higher level (Hall, 2000).
All the products that are transported over long distances bring in a negative environmental impact and pollution brought in is quite serious. For instance, 22.8g/km NOx, 1.9g/tkm SO2, and 1.52 g/tkm dust are brought about. These emissions from the traffic sector have great effects on the health of a human being that are negative. These effects become well seen and mostly in towns or cities.
Alternative policies and options
Based on a logistical and environmental standpoint, the management of this company is planning to evaluate the alternative modes of transportation with the respect to the tender honey product for the planning year of 2010. The first alternative available is that the company could discontinue the use of refrigerated railroad cars for delivering up to Los Angeles and use the company-owned private trucks and refrigerated trailers. Another available alternative is that the company could make use of an air carrier service that will transport the cases from Virginia and take them directly to the retail outlet.
Considering these alternatives – the use of the company-owned truck is expected to cost one thousand nine hundred and seventy-five dollars per round trip and the maximum capacity per truck is one thousand two hundred and ninety cases. Each trip leg is expected to take four days.
Looking at the second option in which an air carrier service could be used in the transportation of the company’s product – an air cargo that has just come up has presented an offer to the company. The air cargo firm is ready to charge one dollar for the initial 15 pounds per case for a two-day delivery service that is guaranteed as long as the cargo has to be transported within the continental United States of America. Every additional pound over 154 pounds per case is to be billed at the rate of 5 cents per pound.
Assumptions
The assumption and conversions made in carrying out the evaluation of these alternatives that are to be considered by Virginia Valley Company include; The first assumption is that the total costs encompass average inventory carrying costs, order processing costs, and transportation, and any environmental costs. It is assumed that the investment and capital costs are left out and not included in this incremental analysis since the shareholder of the company will give out funds for whatever new capital equipment.
Another assumption is that the number of the order cycle each is equivalent to the yearly demand in cases divided by the order quantity and each year is assumed to be having 360 days. More so, it is also assumed that one kilogram is equivalent to 2.2 pounds and one metric tone is equivalent to 1000 kilograms. A mile is taken to be equal to 1.6 kilometers. The pricing for any carbon offsetting is based on the Chicago Climate Exchange spot rate for vintage 2008 at December 2009.
The last assumption here is that the energy consumption costs are contained within the transport costs and may be ignored.
Recommendations
The Virginia Valley company should opt to take the option of using the airplane instead of shipping the products using road. This will be of great benefit since costs will be cut. Firstly, there will be direct delivery of the smoked hams to the retail outlet. Instead of having to deliver the products to the distribution stores first before these products being distributed by the commercial vans operated by a local firm of the retailers and the franchisees. More so, there will be saving of time since using trucks and refrigerated trailers take more than four days to make a single delivery. Using the airplane will make it possible to make more deliveries. More so, since refrigeration costs are very high, by delivering to the retail outlets directly, the refrigeration costs will have to be saved.
More so, based on the environmental concern, using the road transport in carrying the smoked harm will go on bring in more pollution. The trucks and trailers take much more time on the road. As it has already been seen, the more time a motor vehicle takes on the road, the more pollution this vehicle causes. This problem is even intensified especially when it is considered that there are several trucks and trailers to be involved in the transporting of the smoked ham. Other than releasing the emissions into the atmosphere that are harmful to the human health, they have other social impacts.
Conclusion
As it has been seen, the Virginia Valley Company is supposed to take the alternative of using the services of a small air cargo firm that has offered to provide the services to the company. Although the transportation costs associated with this type of mode of transport, in relative terms, by the company using this mode it will have to save the costs. Among the benefits is that the company will be able to supply its products more frequently, costs on refrigeration will have to be cut down.
Of even much more significance regarding the environmental concern, the pollution of the environment that will have to occur will not be as high as using the vehicles that will have to take much time on the road. As it has been seen, is established that the more time it is spent on the road by the vehicles the more they increase the level of pollution.
Such a move will have to enable the company to have sustainable logistics and supply chain management. By this company putting in place sustainable logistics and supply chain management, it will be able to run operations most effectively and efficiently. It will be able to raise the level of its revenues, minimize the costs, and at the same time realizing customer satisfaction.
References
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Boge S., 1995. The well-traveled yogurt pot: lessons for new freight transport policies and regional production. World Transport Policy and practice, Vol. 1, 1995, 1995, pp. 7- 11. London: MCB University Press Limited, 1352 – 7614.
Carter C. R. and Rogers D. S., 2007. A framework of sustainable supply chain management: moving toward new theory. London: Macmillan Publishers.
Grant B. D., 2010. Design of closed-Loop supply chain and product recovery management for fast-moving consumer goods: The case of a single-use camera. Logistics Institute business school. Hull: University of Hull.
Hall J. Environmental supply chain dynamics. Journal of cleaner production 8 (2000) 455 – 471.