LV Thạc sỹ_Enhancing efficiency of logistics management in manufacturing enterprise

Chapter 1: Introduction In this chapter, the authors briefly present the background introduction related to the subject of the research which is logistics management enhancing efficiency in manufacturing enterprises. The problem statement and definition also are mentioned in this chapter, this chapter also provides a focus on limitation, validity and reliability of the research. ======== Chapter 2: Theoretical background That is chapter author focus on framework theoretical analysis in terms of logistics management, including definition, explanation, the analysis study relating to all factors of logistics process, the knowledge in logistics industry application in manufacturing enterprises. ========= Chapter 3: Analysis of EuroWindow logistics management This is chapter relating to case study, after performing theoretical framework analysis as presented in chapter 2, in this chapter author take all of you to the study in practice, application practice study is done in Eurowindow Holding Company, that is outstanding typical example about manufacturing enterprise in Vietnam. Logistics management process in typical one due to its material and supply characteristics, after reading this study, author do hope it will be useful for all readers in enhancing efficiency of logistics management in a course of cost down program especially the readers who are working in logistics and manufacturing industry. Also in this chapter author mainly mention the suggestion, recommendation as conclusion of chapter after taking this research, the author also point out what are suggestion and recommendation to enhance logistics management in Eurowindow. ========== Chapter 4: Recommendation: In this chapter we suggest some recommendations in order to enhance efficiency of logistics management in Eurowindow after undertaking the research and pointed out the weaknesses presented in this system.

Subject: enhancing efficiency of logistics management in manufacturing enterprise

Chapter 1 INTRODUCTION 1.1 Background

Logistics actually took part in the activities of people’ life very long time ago, logisticshas gone from a military matter to being one of the key business issues today However,the concept of logistics is rarely understood fully especially in developing country likeVietnam

In the aspect of business, logistics has been coming long with every development stage ofeconomy and is indispensable part to speed up the business Logistics is a work required

to move and position inventory throughout a chain of participants From initial purchase

of materials or components, the system of logistics adds value by moving inventory when

it is needed and where it needed Materials and components gain value at each step oftheir change into finished inventory Nowadays, the internationalization of the worldeconomy has substantially increased the border-crossing activities between companies.Consequently, logistics has become a strategic weapon for the success of many globalfirms By minimizing the costs in the value chain or providing customers/consumers withdifferentiated service, logistics acts as a major source of competitive advantage In spite

of significance of cost factors, the environmental consideration have become another keyelement in the development of logistics strategy, and this role will possibly increase in thefuture A better logistics management system could help company reduce cost, increasequality and improve its customer service

Why author focus this research on manufacturing companies:

Manufacturing enterprises or manufacturers that author focus the research on areunderstood to be an enterprise producing a visible product or manufacturing industry Themain reason that make author undertake this research is the logistics process inmanufacturing enterprise are complicated, with many process and crossed, matrix, furthermore, the logistics cost in manufacturing enterprises often account for a significant part in

total manufacturing cost and product cost

In relation with this kind of business, logistics management for manufacturers becomemore important than ever, it involving transportation of materials and finished products,warehousing, inventory and its management As soon as a company expands its activities

to other countries, the logistics management herewith will be taken into carefulconsideration and importance

1.2 Problems statement

In the past few years, t h e r e h a v e b e e n a lot of studies that have been made on thelogistic management However, in this research, we are going to focus on main logisticsprocess management of manufacturing enterprise that include both inbound andoutbound logistic activities and it’ enhancing efficiency leading to lower inventory andcapital tie-up that will gain higher competitive advantage for manufacturers

The whole logistics process at Eurowindow basically can be generally divided into twoparts, inbound logistics which is from the suppliers to factory this including materialinput flows such as profile, steel, glass….,and outbound logistics which is from factory

to customers or even to end consumers through the distribution channels, this is finishedproduct flow, in addition to this process, logistics system in Eurowindow also consists ofinformation flow, the inter-department communication and feedback, the logistics system

in Eurowindow is complicated with overlap management between sections anddepartments, in not effective way that leading to high inventory and capital tie-up duringproduction process that we call as weakness, or Business Improvement Area (BIA), such

as unclear information of warehouse, material planning, production planning and obsoletestock, these are root reasons for high inventory that leads to low business efficiency i ntheir activities

1.3 Research Question

1) What is the main logistics system currently in manufacturing enterprise in general and

in Eurowindow in particular? And what are weaknesses?

2) What m a i n e l e m e n t s we will use to measure the effectiveness and efficiency ofthe logistic system in manufacturing enterprise?

3) During undertaking the research in Eurowindow, what should be recommendations thatauthor can suggest the BIA to enhance efficiency on logistics management?

4) What experiences in terms of logistics management we can get from undertaking thisresearch that should be applied to manufacturing enterprise in enhancing efficiency oflogistics management to upgrade the its standing in the market?

1.4 Purpose of the Thesis

The purpose of my study is to explore a logistics system management in manufacturingenterprise and improve it’ management to make manufacturing enterprise get morecompetitive advantage With case study of Eurowindow holding company, as anoutstanding example of manufacturing enterprises as well as it logistics systemmanagement in this company the purpose of our study will be shown clearly The purpose

of study specifically can be shown as following contents:

1) Systematizing the basic theory about logistics and it’ management

2) We will review the logistics management in manufacturing enterprise

3) Application recommendations to enhance efficiency in logistics management, supplychain as well to increase competitiveness for products in the competing market

1.5 Scope & Limitations

The scope of our study thesis is that we mostly pay attention to logistics process ofmanufacturing enterprises, basing on logistics management’s concept to reduce cost

With the thesis name is enhancing efficiency of logistics management in manufacturing enterprise, it will be missing if author do not take practical study, we can call this

practical study here as case study, in this case, author refer readers to explore logisticsmanagement in Eurowindow, that is company specializing in aluminum and plasticsdoors, with 03 factories located in North, South and the Central of Vietnam, along withmaterial warehouse system, Eurowindow surely will be a typical example for

“manufacturing enterprise” that author want to focus, with complexity of material sourcesand wide list of suppliers, operation from procurement, planning , production anddistribution, enhancing efficiency of logistics management in Eurowindow also iscomplicated and therefore it required the all efforts from author as well as supporters infinish this research

1.6 Research Methodology

In this thesis, we undertake the research in two parts, the part one is to present what ismain theoretical framework used to carry out the research, and the part two is to statelogically how this study has been implemented

1.6.1 Theoretical frame work

In this part, author wants to focus the readers on the theoretical study, including generalstudy on logistics systems and logistics process management The basic parameters arealso used to support analysis in undertaking this research; it is to measure the logisticsefficiencies, logistics cost and logistics management applicable in manufacturingenterprise

1.6.2 Data collection and analysis

1.6.2.1 Secondary Data

The data from the library, target companies and through Internet, textbooks, journals,articles are important for author to undertake this research, and is indispensable part in thisresearch, the types of these data has been collected including basic definition, the typicallogistics process model and basic parameters in logistics cost for reference, and are usefulfor us in writing this theoretical analysis of this research

Beside company document, records, files and reports have provided author with basicinformation about business operation and logistics process efficiencies such financialreport, inventory report and calculation

1.6.2.2 Primary Data

In order to get primary data, it was performed through undertaking both personalinterviews and direct observations As a person working in logistics sector, we have manychance to meet and work with logistics companies and with Eurowindow HoldingCompany leaders, managers, these gave us the opportunity to ask many questions as theyarose We have also been going through an introduction of the company background, theorganizational structure and the Simulation Modular, from which we got a clear picture oftheir originations structures and general information of different business processes

In this research, the author undertook the interviews with many department leaders andmanagers, including factory directors, through this interview; we can get lot informationabout logistics management system in Eurowindow as well as the weaknesses in thissystem Beside undertaking interviews, we also make directly survey at factory, warehousesites what author can understand and found out the real situation in this logisticsmanagement of Eurowindow as well as the weakness that lead to high inventory in thiscompany, from these analysis, the author will make out a report about recommendationand suggestion to enhance efficiencies in this logistics management of Eurowinow

 Personal Interview

Due to the size of Eurowindow Holding Company and the complexity of the Logisticoperational process, It is very difficult to find an accumulated information resourcefor all operations process We decided the personal interview would be preferable inour production and procurement area, as we can talk face to face with the personwho is in charge of the procurement, production, warehousing section and export importsection about material planning, production planning and organization, the some maincosts in inventory costs, we are interested in and instantly follow up the questions Ithelped us to acquire the just-in-point information and precise pictures of what and howthe business works

Personal interviews can be done in different ways The main two are structured interviewand unstructured interview In case of unstructured interview, there is no schedule Ourunstructured interviews are mainly with logistics operators in logistics, production,procurement, planning and material department in Eurowindow Holding Company, inThird Party Logistician and usually occurred in a relaxed environment such as coffee

breaks when people were relaxed In our structured interviews, we prepared a particularorder of questioning before the interviews; this then meant that we could be flexible withregard to questions raised in relation to our research problems Some of our interviewshad to be done along with site visits where what we heard was instantly confirmed bywhat we observed.

Our interviewees of course are people who have good concept of logistic or at least theyare working in logistics field, some of them are even specialists Our interviewees, most

of them have been working in the Eurowindow Holding company for years and some ofthem used to work for Eurowindow Holding Company and some of them are nowworking in Third Party Logistics Company Such experienced persons thus shall provide

us intensive knowledge

 Observations (Site visits)

Theoretically, observations can be both qualitative and quantitative In observations, it isimportant to avoid taking part of the things observed Since we are in the process ofmapping their work process, all of our observations are qualitative And when beingcareful and listening to people with respect to their knowledge, it can be useful toparticipate in the observations The participating observations are unstructured, and weshifted from looking, listening, asking questions, and acting

1.7 RESEARCH STRUCTURE & DISPOSITION

Chapter 1: Introduction

In this chapter, the authors briefly present the background introduction related to thesubject of the research which is logistics management enhancing efficiency inmanufacturing enterprises The problem statement and definition also are mentioned in thischapter, this chapter also provides a focus on limitation, validity and reliability of theresearch

Chapter 2: Theoretical background

That is chapter author focus on framework theoretical analysis in terms of logisticsmanagement, including definition, explanation, the analysis study relating to all factors of

logistics process, the knowledge in logistics industry application in manufacturing enterprises

Chapter 3: Analysis of EuroWindow logistics management

This is chapter relating to case study, after performing theoretical framework analysis as presented in chapter 2, in this chapter author take all of you to the study in practice, application practice study is done in Eurowindow Holding Company, that is outstanding typical example about manufacturing enterprise in Vietnam Logistics management process

in typical one due to its material and supply characteristics, after reading this study, author

do hope it will be useful for all readers in enhancing efficiency of logistics management in

a course of cost down program especially the readers who are working in logistics and manufacturing industry

Also in this chapter author mainly mention the suggestion, recommendation as conclusion

of chapter after taking this research, the author also point out what are suggestion and recommendation to enhance logistics management in Eurowindow

Chapter 4: Recommendation:

In this chapter we suggest some recommendations in order to enhance efficiency of logistics management in Eurowindow after undertaking the research and pointed out the weaknesses presented in this system

TABLE OF CONTENTS

ACKNOWLEDGEMENT ……… 4

ABBREVIATION ……… 5

List of figures ……….6

EXECUTIVE SUMMARY ………7

Chapter 1: INTRODUCTION 1.1 Background ………8

1.2 Problems statement ……… 9

1.3 Research Question ………9

1.4 Purpose of the Thesis ……… 10

1.6 Research Methodology ……… 11

1.6.1 Theoretical frame work ……… 11

1.6.2 Data collection and analysis ……….11

1.6.2.1 Secondary Data ……… 11

1.6.2.2 Primary Data ……… 11

1.7 RESEARCH STRUCTURE & DISPOSITION ……… 13

Chapter 2: THEORETICAL background of LOGISTICS MANAGEMENT 2.1 Logistic concepts and attribute ……… 15

2.1.1 Logistics and logistics management concepts ……… 15

2.1.2 Logistics attributes ……… 17

2.2 Logistics Systems in manufacturing firm: ……….18

2.2.1 Inbound Logistics systems ……… 19

2.2.2 Outbound logistics System ……… 20

2.3 Distribution Channel ………21

2.4.1.2.2 Warehousing and Distribution Center ………23

2.4 Logistics management in Manufacturing enterprise ……… 25

2.4.1 Implementing Effective Logistics Strategies ………25

2.4.2 Establish supplier relationships ……… 25

2.4.3 Increase customer responsiveness ……… 26

2.4.4 Build a competitive advantage for the product oriented channel ……… 26

2.4.5 Introduce SCM solutions and enabling information technology ………27

2.5 Logistics system management Analysis ……….27

2.5.1 The Logistics system Objectives and Principles ……… 29

2.5.1.1 Objectives ……… 29

2.5.1.2 Principles ……… 30

2.5.1.2.1 Reducing the influence of lead time variability in the productive system ……30

2.5.1.2.2 Reducing the influence of inventory variability at different stages ……… 30

2.5.1.2.3 Reducing the influence of batching effects variability … … … 31

2.5.1.2.4 Reducing the influence of variability due to bottleneck operations … … … 32

2.5.1.2.5 Developing coordinated strategies ………32

2.5.1.2.6 Implementation ……….32

2.5.2 The Logistical Measurements ……… 33

2.5.2.1 Lead-time ……….34

2.5.2.2 Tied-up Capitals ………34

2.5.2.3 Logistical Cost ……… 35

Chapter 3: ANALYSIS OF EuroWindow LGOGISTICS MANAGEMENT SYSTEM 3.1 BUSINESS STRUCTURE & OPERATION IN EUROWINDOW HOLDING … 37

3.1.1 About Eurowindow Holding Company ……….………….…….……37

3.2 Current situation of Eurowindow logistics management ………… …… ……….39

3.2.1 Logistics management system procedure and responsibilities at Eurowindow … 39

3.2.2 Physical material flows and control points ……… 39

3.2.2.1 Material flows:……… 39

3.2.2.2 Finished products and semi-product flow:………40

3.2.3 Factory and warehouse system of Eurowindow Holding Company:………41

3.2.3.1 Factory and warehouse system in North of Vietnam:………41

3.2.3.2 Factory and warehouse system in South of Vietnam:………42

3.2.3.3 Factory and warehouse system in Central of Vietnam:……… 43

3.2.4 Operation Assessment Index (KPI)……… 45

3.2.5 Department & Section in Eurowindow Holding Co……… 45

3.2.5.1 Sales department:………45

3.2.5.2 Planning and Materials Department:……….47

3.2.5.3 Aluminum product & materials management department:………47

3.2.5.4 Export import Material Department……….50

3.2.5.5 Internal Control Department……… 53

3.2.5.6 Factory ……… 54

3.2.5.7 Accounting & Financial Department: ……… 59

3.2.6 Inventory Management and Payment article ……… 60

3.2.7 Financial Data-Inventory ……….60

3.3 FINDINGS ……… 64

3.3.1 BIA 1: Unclear information of inventory……… 65

3.3.2 BIA 2: Material planning ………65

3.3.3 BIA 3: Production planning ………66

3.3.4 BIA 4: Obsolete and slow moving stock ……… 66

3.3.5 BIA impact, analysis and focus ………67

3.3.6 BIA impact support data……… 67

3.3.7 BIA analysis:……… 68

3.3.8 BIA Analysis matrix calculations ……… 69

CHAPTER4: RECOMMENDATION

4.1 Main recommendation ……….………70

4.1.1 Strategic: ……….……… 70

4.1.2 System: ……….……70

4.1.3 Improving Processes: ……….…….….71

4.2 Financial Impact……….……… 72

REFRENCES ……… 73

LIST OF INTERVIEW QUESTION ……… 75

APPENDICES………76 APPENDIX NO 1: BALANCE SHEET (02PAGES)

APPENDIX NO 2:PROFIT & LOSS STATEMENT - VAS

APPENDIX NO 3:PROFIT & LOSS 08-09 MONTH (02PAGES)

APPENDIX NO 4:INVENTORY COST IN BRANCHES AND WHOLE COMPANY APPENDIX NO 5 :INVENTORY COST 08-09 MONTH

APPENDIX NO 6: EUROWINDOW LIST OF SUPPLIERS

Working in logistics industry, author of this research understand the complexity of logisticsprocess and logistics management, in order to finish this research, it required much effort,and it take me much time in daily busy working life With my continuous efforts, in theend, my research has been finished successfully To reach this achievement, firstly I wouldlike to express my great thanks to my supervisor, Dr Nguyen Quoc Duy, for his invaluableadvice and support during my whole study

I also am grateful to all of my classmates from EMBA-4A, they are really supporter to me,they have give me the power and determination to finish this research, their support isencouragement for me to get today achievement

I also would like to express my sincere thanks to my close friend, Mr Le Viet Hung, theAluminum Procurement Department managers in Eurowindow for his support in aspect ofinformation, I also would like to thank my parents, my wife, who are really my anothersupporters in finishing my research

I also would like to express my great thanks to the NEU Business School, where has given

us a chance to finish my Master of Business Administration course

Finally, I also would like to express all may staffs who are give me their real sympathy sothat I have enough time to finish my this writing

Science is immense, With my limited knowledge and working experience, I have shown itall on this writing, also as I stated above, the logistics industry is vast sector that consist ofcomplexity, my this research may not make readers, especially my teachers, lecturer and

my supervisor satisfy With limited time I have spent on this research, the missing oremistakes are unavoidable in this study Thus also by this acknowledgement, I really expect

a sympathy from readers, especially from my teachers, lecturers and supervisor for the finalpurpose of finishing my Master of Business Administration

With many thanks

Nguyen Ngoc Chinh

8 2PLs Second Party Logistics Provider- Capacity Provider

10 4PLs Forth Party Logistics Providers- Integrated Logistics

List of figures

Figure 1: Material & information logistics flow 17

Figure 5: Factory and warehouse system of Eurowindow 38Figure 6: Material flow and urgent Material flow 40Figure 7: North Branch Organization chart in Quang Minh IP 41Figure 8: ISO Eurowindow Working Organization Charge 44

Figure 11: The fluctuation for procurement time of an order 52Figure 12: The fluctuation for procurement time of an order, the positive value 52Figure 13: Fluctuation Extent for procurement time in each stage 53Figure 14: This diagram showing average ration among inventory items 57Figure 15: Inventory Cost Low-Major main materials of plastics-2009 57Figure 16: Inventory value from Sep,2008 to Sep, 2009 in different location 61

Figure 19: Findings and Business Improvement Area 64Figure 20: Current Inventory turn & Aspiration Inventory turn in Eurowindow 67Figure 21: Benchmarked company used for comparison in Eurowindow 68Figure 22: Diagram showing the complexity of BIA and Impact value 68

EXECUTIVE SUMMARY.

In recent years under the competitive pressures and requirement to down cost to improvecompetitive position for products, many companies and manufacturers have paid theirmuch attention to enhance efficiency of logistics management, as you can see thelogistics and supply management cost increases day by day, improvement of logisticsmanagement will lead to lower inventory value and capital tie-up, enhance theefficiency of capital usage in manufacturing enterprise by increasing the material cycle,and capital rotation

As any other manufacturing enterprise, Eurowindow logistics management are facing highinventory and capital tie-up, that the root reason here are some problems, such as unclearinformation of stock, material planning, production planning and Obsolete stock, thesewill be called as BIA (Business Improvement Area) as surveyed by author, these factorsare weaknesses in logistics management that leading to high inventory and capital tie-up atEurowindow that should be improved to enhance the efficiency of business activities inthis company,

Basing on the survey, also in order to help readers understand further the importance andprocess of logistics management in manufacturing enterprise, information and materialflows, the outbound flow and inbound flow, as well as how logistics management aretaken place in manufacturing enterprise and in Eurowindow as well, taking readers toexplore how to optimize the logistics process have been become the main motivation forauthor in deciding to undertake this research

As you can see, the main focus of this research are focus on logistics process andmanagement at Eurowindow, the main objectives of this research therefore are the findingout the weaknesses (BIA) in logistics management at Eurowindow, then makerecommendation of the solution to improve the process, enhance efficiency of logisticsmanagement in this company, in this research, the main recommendation of author toreduce inventory, enhancing efficiency of logistics management in Eurowindow arestrategy, System and Process The efficient extent of this research anyway also basing onthe aspiration of Eurowindow in terms of inventory level, however, with all of efforts, theauthor do hope that this research will be useful for many manufacturers in enhancinglogistics management and strengthening the its standing in the market

Chapter 2 THEORETICAL background of LOGISTICS MANAGEMENT

2.1 Logistic concepts and attribute

2.1.1 Logistics and logistics management concepts

Logistics has gone from being a military matter to being on of the key business issuestoday Logistics or higher level of supply chain service is the work required to move andposition inventory throughout a chain of participants From initial purchase of materials orcomponents, the system of logistics adds value by moving inventory when it is needed andwhere it is needed Materials and components in manufacturing industry will gain value at

each step of their change into finished inventory In terms of logistics concept, we basicallycan understand as following definition:

“ Logistics is the process of strategically managing the procurement, movement and storage of materials, parts and finished products through the organization and its marketing channel in such a way that current and future profitability are maximized through the cost effective fulfillment of the order”

As author said in this name of thesis, in this research we mainly focus on logistics study onmanufacturing industry, and in turn of logistics role, it play a very important role incompetition with other similar products in the market if that firm have effectivemanagement on logistics process

In general, there are many methods that can make a manufacturing firm succeed today andcan take competitive advantage in future, the matter of course is that the firm mustrecognize that the competition today is through their capabilities and competencies Bymanaging their logistics process better than any other competitors, that firm can createsuperior value for customers and consumers and finally they will gain the advantage at themarketplace With that understanding, the Council of Logistics Management (CIM) alsogive out a broader definition of logistic management that widely used as follows:

“Logistics management is that part of the supply chain process that plans, implements and controls the efficient, effective flow and storage of goods, service, and related information from point of origin to the point of consumption in order to meet customers’ requirement”

In the stage of globalizing economy in the world, the intensified competition pushesmanufacturing firm to contract out logistics operations or in other way of saying, most ofmanufacturing firm outsource logistic as Third Party Logistics Unit (3PL) to handle theirlogistics process, and in their turn, they will cut d o w n costs in an effort toconcentrate on core competences The logistics industry therefore began to transformfrom the simply traditional transportation industry and nowadays this is continuing at arapid speed

Logistics, previously viewed as a classical function, which involves adversarialrelationships among suppliers, customers and transportation providers, is emerging as akey source of competitive advantage and a leading reason for strategic alliance

relationship between companies and their logistics providers.

Logistics therefore can be seen as a n evolution through four distinct areas:warehousing and transportation management, total cost management, integrated logisticmanagement and supply management The development of the logistic industry began

by merely providing tactical transportation and warehouses services to more centralizedlogistics functions aimed at cost control and customer services The role of logisticsservice providers then continued to expand from total cost management to theintegrated logistics solution providers

All of these developments so far are in the vertical levels or are functionally oriented,which mainly concentrates on the outbound logistic area from the end-producer to thecustomer We believe that the further development of the logistic industry will take place

in the horizontal level of the value chain Logistics providers will expand their businesstowards the upper stream of value chain by which the whole logistic supply chain isintegrated from suppliers through manufacturers and all the way down to the endcustomers In other words, from the outbound part penetrating into the inbound part,the centralization effect could be maximally leveraged

Within the area of business logistics, today’s changing dynamic industry haveinfluenced the design, operation and objectives of supply systems by increasingemphasis on enhancing efficiency of customer service levels, reducing cycle time,enhancing efficiency of quality of products and services, reduced costs, integratedinformation technology and process flows, planned and managed movement, andflexibility of product customization to meet customer needs. It ha s certainly alsoput logistics firms to the test that outsourcing of logistics management providesdemonstrable advantages, but in many cases the logistics itself has to be restructured ifsubstantial savings are n o t to be achieved Thus, there is an increasing demand forexperts capable of overseeing such restructuring logistics process

In aspect of efficiency for logistics management, information technology has beenconsidered to support logistics for many years with considerable role Recentdevelopments in technology have brought information to the forefront of resourcesfrom which forward-thinking firms can cultivate genuine competitive advantage The

major technology behind improved information flow was the appearance of electronicdata interchange It offers greatly improved information flows and is an extremelyimportant aspect within leading organizations in the fight to decrease lead- times.Today, the information flow has been shown to be the backbone of the logistic system.How to optimize the information flow to leverage the effectiveness and efficiency of thewhole logistic system is one of the most important areas in which the logistic providersare competing with each other.

2.1.2 Logistics attributes

Logistics best practice is presented as a works in progress, subject to a continuous changebasing on the evolving nature With use of logistics management with the goal is to linkthe market place and the operating activities business in such way that customers areserviced at higher levels and at a lower cost According to Christopher with the use of atotal systems viewpoint of logistics management, the need of customers could be satisfiedthrough the coordination of the materials and information flows that extend from themarketplace, through the operation environment of the firm and to the suppliers

Figure 1: Material & information logistics flow

Logistics management focus is to optimize flows within the organizations and to have aplanning orientation that seeks to create a single plan for the flow of product andinformation through a business

Christopher also pointed out that it has to be kept in mind that even if logistics is described

as an integrative concept that seeks to develop a system-wide view of the firm, it is stillprimarily a planning concept The mission of logistics management is to create a one planmentality within the business

In the end, the summary is that logistics’ most significant attribute is probably that it is

cross functional, it crosses broader within the firm and also crosses barriers to other firm It

is probably because of this cross functional attribute that definitions of logistics ofteninclude a definition that considers the links to the supply chain The cross functionalattribute also make it difficult to apply a system view on logistics, and therefore it isimportant for a manufacturing firm to have a strategy for logistics

2.2 Logistics Systems in manufacturing firm:

Logistics activities in manufacturing enterprise can be divided into 02 main logisticssystems, that is inbound logistics (including material management and procurement) andoutbound logistics (customer service and channels of distribution)

Basically we can understand that the definition of inbound logistics is a matter ofperspective If you are the receiver of a shipment, i n t h i s c a s e the shipment is

c a l l e d a s inbound to you; if you initiate or send a shipment for instance to a rawmaterials supplier, manufacturer or vendor might do in this case flow is outbound flowfrom you

Seen from the supply chain perspective, it follows that the sequence for the material flowfrom origin to final consumption, this is a rather complex network, there are somelayers of supplier and layers of distributors, this network is centralized in one point,that is the manufacturing firm, also defined as OEM (Original EquipmentManufacturer) Before OEM, all the material can be seen as an unfinished product, andafter it has been changed into a finished product it will have progressed further in thedistribution process According to this production characteristic, we define our inboundprocess in the material transit flow between product manufacturer and its customer, that is

to say, the inbound logistics process is the flow from the raw material supplier tomanufacturers, and the outbound as the finished product from manufacturers to the enduser

The inbound logistics service company plans shipments for the manufacturer "in" totheir location, but the material supply comes from many places Suddenly thetransportation process becomes infinitely complex With this complexity come moreopportunities to reduce transportation costs – if transportation is well managed

2.2.1 Inbound Logistics systems.

Basically saying, the Inbound Logistics consists of two main activities that is procurement

a n d p l a n n i n g , the procurement is in relation to material flow and planning is in relation

to information flow The p r i m a r y p u r p o s e of this activity i s t o o p t i m i z e a n dstructure supply and production planning As inbound logistics mainly deals with thematerial purchasing and transaction, the purchasing area is divided into product groups,with the purchaser in each group responsible for the entire life cycle of the products in thegroup Each purchaser has an assistant from the logistics department or outsourcedLogistics Company who takes care of daily details of communicating instructions tosuppliers and following up on them This is a rather complex structure, within thestructure, different kinds of material come from the different suppliers, andits sub-suppliers

An automobile, for example, i t s ho ul d consists of thousands of parts, and all theseparts are purchased from different suppliers in different areas, and then assembledtogether as an finished product, this car can be sold at rather a high pricecompared to its value of raw materials The outbound is the process, with highervalue created, and inbound process is the process without much value created, normallythe value of these components and spare parts are not very costly, but this process asksfor high logistics capacity for transaction, to link the complex layers of supplier inreaching to the central manufacturer Logistics service provides coordination ofproduction planning in order to optimize the production process with respect to both salesand supply of materials

That means that the inbound logistics process is the part in the supply chain that has

a complex procedure, lower value added and higher capital tied up The planning andutilization of logistics and administration are very effective in reducing the overall cost.This is why we make this research in enhancing efficiency of overall efficiency inthis process

As above study, the inbound logistics process is take a high capital tie-up, thus takinggreater control of inbound logistics has become a top priority for many manufacturingfirm as they look for cost-enhancing efficiency opportunities to improve theircompetitive position for product in the market The manufacturing firms have so farfocused on their outbound operation because it is the customer-side of the business, whilecontrol of inbound operations was generally relinquished to suppliers It is not that

outbound operations have been streamlined and extracting additional benefits havebecome more difficult, companies are turning their attention to inbound to not only reducecosts, but also to forge more collaborative relationships with internal groups, suppliers,and transportation companies, which ultimately results in ‘smarter’ business processesthat benefit all parties

The manufacturer serves as the key person in the supply relation, and they have puttheir emphasis into controlling inbound process It is obvious the efficient controllingmay greatly increase efficiency in the processing flow, reduce inventory tied up bymeans of accelerating material flow circling around, it will be of mutual benefitbetween suppliers and manufacturers, because in this relation, the supplierbecomes strategic alliance member together with manufacturer

While seen from a logistics service provider’s perspective, controlling inbound logisticsprocess acquires higher logistics capability because in the flow moving, the just in timedelivery becomes the key element for just-in-time manufacture Between the materialflows from supplier to manufacturer, the logistics service provider is so-called 3PLwho acts as another key person in this relation

2.2.2 Outbound logistics System.

As we stated above, the outbound logistics activities in a manufacturing enterprisesincluding customer service and channels of distribution for the products In today’schallenging competition in the consumption of products, the manufacturers have to strivefor their products to reach final customers before they turn their heads to the rival’sones This challenge is influenced by for example globalization, deregulation, newbusiness comers and convergence of the industries

Distribution of the products is a significant part of economic activities of bothdeveloped and developing countries’ economies, with wholesaling and retailing value-added The major goal of the distribution system is to enhance the flexible sales andmake possible consumers to purchase particular products through distribution center ofmanufacturing firm Outbound logistics activities turn out to be one of the significantthemes playing the role in supply chain management and total logistics

2.3 Distribution Channel

Distribution channel management is very critical for the firms when they decide to enterone or more markets Distribution channel structures are not difficult to change; however,primary wrong decisions might lead to dreadful results for the organizations Depict thatdistribution channel management follows a structured approach, using criteria which help

to evaluate optional channel structures during which alignment (compatibility), trade-offsand channel relationships are considered Increasingly, the roles of logistics service firmsare included in the decision process for distribution channel, especially when they are adominant element within the supply chain

All products whether consumer products, industrial products or services require the use ofdistribution channel Distribution channel consists of the group of people and firmsinvolved in the transfer of title of products move from producer to final consumer orbusiness user Nowadays, most international firms would prefer to run a direct channeldistribution however instead the firms themselves are forced to use intermediaries andmost distribution channels consider and consist of middlemen, but some do not

A channel that has only producer and final customer, with no middlemen providingassistance is called “direct distribution”, whereas a channel of producer, final customer,and at least one level of middlemen represents “indirect channel” The most commondistribution channels for consumer goods can be seen from below diagram whichillustrates major channels of distribution

Producer  Consumer:

The shortest, simplest distribution channels for finished products involves no middlemen

Producer  Retailer  Consumer:

Finished products ship directly from manufacturers to large retailers

Producer  Wholesaler  Retailer  Consumer:

If there is a traditional channel for products, this is the one normal way The smallRetailers and manufacturers by the thousand find this channel the only economically feasible choice

Producer  Agent  Retailer  Consumer:

Instead of using wholesaler, many producers prefer to rely on agent middlemen to reach the retail market, especially in large-scale retailers

Producer  Agent  Wholesaler  Retailer  Consumer:

To reach small retailers, producers often use agent middlemen, who in turn call

on wholesalers that sell to large retail chains/or small retail store

After designing a channel, next thing that firms must consider is, on the intensity ofdistribution which means how middlemen will be used at the wholesale and retail level in

a particular territory There are three degrees of intensity

Figure 2: Model of typical distribution

 Exclusive distribution:

In exclusive distribution, suppliers agree to sell their products only to a singlewholesaling middleman and/or retailer in a given market and it is just an extreme case ofselective distribution which is the firm is selling through only one middleman inparticular geographic area Attorney and Walters (1996) state that the partnershiprequires mutual support in developing sales and supporting services to the final userssuch as maintenance plan and emergency service requirements They also mention thatexclusive distribution is found for the customer product groups of which large inventoriesare required to offer consumers a wide selection This kind of distribution is used whenproducers be interested in to maintain and control over their service level and serviceoutputs offered by the retailers

2.4.1.2.2 Warehousing and Distribution Center

Warehouse and distribution center (DC) are very important modes in a outbound logisticsnetwork; they perform valuable functions that support the movement , storing goodsprocessing products, de-aggregating vehicle loads, creating stock keeping unitassortments, and assembling shipments These are the activities commonly performed inwarehouses and distribution centre The major challenge to Daces and warehouse, bothtoday and tomorrow, is related to workforce issues, for example, staffing, training,scheduling and job design Moreover, firm must also consider facilities that help the firm

to cut handling costs

 Warehousing

New cars can be stored outside on the dealer’s lot, fuel oil can be stored in aspecially designed tank, coal and other raw material can be stored in open pits but most

products must be stored inside protective building According to Higginson andBookbinder (2005), “Warehouses store all products in four cycle (receive, store, pick andship)” Firm can decide and select among the different kinds of specialized storingfacilities, and the right choice might assist the firm reducing costs and servingcustomer better The use of specific type of these storing facilities is aimed to reduce/cutcosts and smooth the distribution as well as operation to enhance service level to thecustomer.

Private warehouses is a storing facility owned or leased by the company for its own use,

additionally, most manufacturers, wholesalers, and retailers have some storing facilities

Public warehouse is an independent storing facility Public warehouse usually provides

all services that a company’s own warehouse can provide They also cite that publicwarehouses are functional and useful for manufacturers who are required to maintainstock in many different locations The first and most significant reason for using publicwarehouse is financial; it requires no or limited capital investment by the company

Daces handle most products in two ways, receiving and shipping rather than storage andalso Daces hold minimum inventories and of predominantly, high-demand items.Nevertheless many of works cited use interchangeably the two terms, warehouse andDC

2.4 Logistics management in manufacturing enterprise.

Basing on different size and scope of business activities, manufacturing enterprise canhandle self-sufficient logistics service or outsourcing from logistics service providers

Within scope of this thesis, we mainly give our focus on manufactures that use outsourcedlogistics provider or under other form of 3PL is “Third party Logistics service”

Logistics is an important part of every economy and every business entity Logistics costaverage about 12% of the world’s GDP The worldwide trend in globalization has led manymanufacturing firms to outsource their logistics function to third party logistics (3PL)companies, so as to focus on their core competencies A 3PL company is an externalprovider who manages, controls, and delivers logistics services on behalf of the shipper

In Singapore, the transport and communication industry sector contributes about 10.8% ofthe GDP in year 2003 The operating receipts for each sub-sector within the transportservice industry for 2003 are shown in Table 1 below (Source: Singapore Department ofStatistics) With such a large contribution to the GDP, a reasonable enhancing efficiency of

5 to 10% to the cost or profit of the distribution network can significantly improve theprofitability of the logistics industry

2.4.1 Implementing Effective Logistics Strategies

The primary purpose in establishing logistics systems is to minimize the flow of rawmaterials and finished products at every point in the pipeline in order to enhanceproductivity and cost savings for manufacturers Successful logistics systemsventures manage some critical elements for parts such as individual business unit in theentire system The strategy covered in different aspects contributes to the overallperformance

2.4.2 Establish supplier relationships

It is important to establish strategic partnerships with suppliers for a successful logisticssystem in manufacturing Corporations have started to limit the number of suppliers they

do business with by implementing vendor review programs These programs strive to findsuppliers with operational excellence, so the customer can determine which supplier isserving well The ability to have a closer customer or supplier relationship is veryimportant because these suppliers are easier to work with

With the evolution toward a sole supplier relationship, firms need information such asfinancial performance, gain-sharing strategies, and plans for jointly designed work.They may establish a comparable culture and also implement compatible forecasting and

information technology systems This is because their suppliers must be able to linkelectronically into the customer's system to obtain shipping details, productionschedules and any other necessary information.

Seen from 3PL companies in inbound processes, building relationships to suppliers(actually its customers) plays important roles in providing high quality service insatisfying both supplier and manufacturers

2.4.3 Increase customer responsiveness

To remain competitive, firms focus on improved supply chain efforts to enhancecustomer service through increased frequency of reliable product deliveries Increasing

demands on customer service levels are driving partnershipsbetween customers and suppliers The ability to serve their customers with higher levels ofquality service, including speedier delivery of products, is vital efforts Having asuccessful relationship with a supplier results in trust and the ability to be customerdriven, customer intimate and customer focused

2.4.4 Build a competitive advantage for the product oriented channel

Achieving and maintaining competitive advantage in an industry is not an easyundertaking for a firm Many competitive pressures force a firm to remain efficient.Some of the competitive advantage sees logistics system management for firms thatemploy the resources to implement the process It also serves to increase the influence onthe channel because these firms are recognized as the leading edge and are treated withrespect

A competitive advantage can be supply chain management, which would helpmanufacturing firms to implement better processes Attaining competitive advantage inthe channel comes with top management support for decreased costs, waste management,and enhanced profits Many firms want to push costs back to their supplier and take laborcosts out of the system These cost reducing tactics tend to increase the competitiveefficiency of the entire system

Manufacturers have become more market channel focused They are observing how theentire channel’s activities affect the system operation In recent times, the channel

driven by the shift to some large retail firms; the large size of these retailers allowsthem the power to dictate exactly how they want their suppliers to do business withthem The uses of point of sales data and increased efficiency of distribution alsohave been instrumental in enhancing efficiency of channel power andcompetitive advantage

2.4.5 Introduce SCM solutions and enabling information technology

Information is vital to effectively operate the supply chain The communication capability

of an enterprise is enhanced by an information technology system However, informationsystem compatibility among trading partners can limit the capability to exchangeinformation An improved information technology system where partners in the channelhave access to common databases that are updated in real-time is needed

2.5 Logistics system management Analysis

We will begin with the analysis of the logistics system framework, in order to gain a clearunderstanding of what a logistics system is about, its basic tenets of linking structuralstrategies with prescriptive strategies

Many strategists agree that firms may not be able to rely either on a price leadership role

or on a differentiation strategy alone to guarantee sustained market strength To sustainlong-term growth, however, combinations of both strategies are typically needed tooperate effectively within constraints imposed by the environment Such is also the casefor a supply chain of products and services offered by a firm However, since a number ofautonomous business entities belong to the supply chain network, it becomes imperative

to develop a common mission, goals, and objectives for the group as a whole, whilepursuing independent policies at individual members' level This scenario offersopportunities for design, modeling, and implementation of logistics networks formaximum effectiveness, efficiency, and productivity in a dynamic environment

As noted, a logistics network can be a complex web of systems, sub-systems, operations,activities, and their relationships to one another, belonging to its various members,namely, suppliers, carriers, manufacturing plants, distribution centre, retailers, andconsumers The design, modeling and implementation of such a system, therefore, can bedifficult, unless various parts of it are cohesively tied to the whole The motivation in

proposing a framework to manage a logistics system is to facilitate the integration of itsvarious components through a common set of principles, strategies, policies, andperformance metrics throughout its developmental life cycle.

Figure 3: A manufacturing logistics network,

An example of a manufacturing logistics network, depicted above, captures the essence

of the proposed framework It has been derived from thegeneral architecture of a supplychain network depicted in above depiction

This logistics system is made up of a manufacturer and a two-level hierarchy of suppliers.Each sub-system in the supply chain network incurs costs that are to be monitored andcontrolled At each level in the supply chain, delay due to procurement activity isincurred, which has the potential of imposing waste, and thus incurring additional costs

in the system This closed loop form of a supply chain system requires tight couplingamong its components This rationale is adapted for the proposed framework

2.5.1 The Logistics system Objectives and Principles

2.5.1.1 Objectives

Logistics objectives directly support its stated goals; such as a common manufacturinglogistics system goal can enhance revenue through eliminating or reducing bottleneck

operations in the system Logistics system objectives that directly support this goal formanufacturers can be identified as:

1) Increase throughput

2) Reduce cycle time

3) Reduce inventory at different stages

(Raw materials - work-in-process - finished goods)

4) Reduce overall capital tied up

5) Postponed management

It is easy to realize that these objectives are complementary to each other For example, aprimary objective of increased throughput in the supply chain must be supported by asecondary objective to reduce cycle time A reduction in processing time and set-uptime will allow smaller batches to be processed faster, thereby lessening congestion inthe system and registering shorter cycle time This will also create increased throughput,and consequently, a higher revenue stream in the supply chain As a result of thisenhancing efficiency i n the supply chain, the tertiary objective of reduced inventory

at different stages, which supports both the primary and secondary objectives, can

be realized, since inventory at different stages will not have to wait for the availability ofoperations for further processing

Objectives can be set both at the group level for the logistics systems and at memberlevel for individual members However, the two sets of objectives ought to becoordinated in order to be effective performance measures for the logistics systems Thismay require tuning individual objectives of members so that common logistics systemobjectives can be met

2.5.1.2 Principles

In general, the principles support objectives for manufacturing the logistics systems

By a p p l y i n g t h e s e p r i n c i p l e s , o u t -of-control processes, i n e f f i c i e n tlogistics, and inefficiencies that are inherently present in any system, can be developed.These principles are:

2.5.1.2.1 Reducing the influence of lead time variability in the productive system

The influence of lead-time can be felt in the supply chain at any stages of its life

cycle The transformation of product through various stages in its life cycle brings outvarious cycle time performances, such as set-up time, process time, queue time, waittime, and idle time One of the primary challenges in managing supply chain is toreduce variability of these cycle time elements This is mainly accomplished bydesigning coordination mechanisms through sharing information in t h e f o r m of

d e m a n d schedules, capacity plans, production schedules, etc

For example:

 Set-up time can be shortened by ensuring constant demand in the system

 Process time variations can be reduced or eliminated by standardizing methodsand procedures

 Queue time can be eliminated by coordinating schedules between servers,

so elapsed time for service can be minimized and server efficiency can be improved

 Idle time can be eliminated or shortened by scheduling maintenance ofproductive resourced

2.5.1.2.2 Reducing the influence of inventory variability at different stages and locations in the logistics systems.

Inventory variability is a serious challenge in the management of a logistics system.This is primarily because the material flow in a logistics system takes on many formsthrough its life cycle and thus assumes various inventory classifications

Various types of inventories are created throughout the material transformation Rawmaterial production is a continuous manufacturing process, where batches are introduced

in order to achieve economies of scale and production efficiencies However, batches

of production cause inventory (or cycle stock) Production may impose sequencedependencies between processes, or create goods-in-transit for a multi-echelon assemblyline set-up Decoupling stocks may also be created, if, for example, an end product

of one process (unprocessed goods) and a raw material for the next process arewarehoused to achieve production economies Material flow at the next stage requiredproducing following materials Anticipation inventories may be created Work- in-processinventories may be created for the following assembly of various components.Finally, consumers' demand patterns, product characteristics, and customer servicelevels dictate maintaining safety stocks to avoid stock-outs

2.5.1.2.3 Reducing the influence of batching effects variability in the productive system

This principle prescribes that the relationship between lot size and lead-time should beclosely managed in a manufacturing logistics system Two types of effects thatemerge from this relationship are batching effect, and saturation effect

Batch Effect The rationale behind this effect is that an increase in lot size should also

increase lead-time For example, a batch of one unit can immediately move to the nextoperation as soon as the processing is complete However, a batch of five units does notmove until all five units are completed That is, the first unit waits until the other fourunits are completed before it moves to the next operation A doubling of the batch size toten units requires the first unit to wait for the processing of remaining nine units Largebatches will cause longer delays of parts waiting for the rest of the batch to becompleted

Saturation Effect The principle behind this effect is that saturation effect works

conversely to the batching effect That is, when lot sizes decrease, and set-up is notreduced, lead-time will eventually increase The reason is that if demand stays thesame, as lot sizes are reduced, there will be more lots in the shop This results in moretime spent on set-ups and less time available for processing As a result, demandbecomes a relatively larger proportion of available capacity and congestion increases.Since the effects of the two phenomena are opposite, the aggregate behavior of lead-time as a function of lot size assumes a convex or a U-shape In the final analysis,however, by making the transfer batch smaller than the production batch, productionlead-time can be substantially reduced

2.5.1.2.4 Reducing the influence of variability due to bottleneck operations in total logistics process.

This principle actually means, rather than balancing capacities that the flow of productthrough the system should be balanced, i.e., the modeling of waste management should bedesigned to control throughput and work-in-process inventory simultaneously This willrequire converting a bottleneck activity to non-bottleneck activity in the supply chain.This can be achieved by creating buffers due to time, inventory, lead-time, etc so as to

allow the bottleneck activity to be synchronized with the succeeding non-bottleneckactivity

A bottleneck operation becomes the control point whose production rate controls the pace

of the system This bottleneck enables execution of policies that create a buffer before thecontrol point so that it gets a deviation to synchronize its actions with downstreamoperations in the supply chain A rope in the form of feedback of information from thebottleneck operations to upstream operations enables the pipeline to maintain itsthroughput

2.5.1.2.5 Developing coordinated strategies

The logistics system management perspective enables developing interaction betweenproduction and marketing policies in the supply process of raw materials and theproduction of finished products The element of coordination in developing effectivestrategies for a manufacturing supply chain is built by incorporating planning and controlfunction as the integration unit

The coordination of the end product is effected with the help of a common modelthat performs the planning and controlling functions of the system In this manner,common policies agreed to among various members of the logistics system areimplemented For example, it may be possible to enforce common quotas forcapacities, mutually agreeing to price and cost structures, as well as productionschedules, etc

2.5.1.2.6 Implementation

Thus, while the focus of the single product logistics system is different, similarities

in approaches to design goals and objectives and model various principles should enablethe developing of structural solutions to problem solving for diverse industryenvironments These principles shall be applied individually

2.5.2 The Logistical Measurements

The final target, for most of business operations, is to reap profit Thus as far as it hasbeen established, the logistic of an enterprise is an integrated effort aimed at helpingcreate customer value at the lowest cost level At a strategic level, logistic managers seek

to achieve a previously agreed quality of customer service through state-of-the-artoperating competency The challenge is to balance service expectations and costexpenditure in a manner that achieve business profitability.

To measure the logistic effectiveness, one must be aware of the elements that affect itsperformance profitability According to Landsmen, the logistic efficiency can bedescribed in terms of service, cost and tied up capital

To have a full understanding of the three efficiency elements, one should not considerthem as isolated parameters without any interaction among each other Actually, theenhancing efficiency of one parameter usually is on the sacrifices of the other two Forexample, if one wants to reduce the cost for transportation by using full truckload, then itwill keep larger volume in stock waiting for large enough shipment quantities The finalconsequences are increased inventory tied up capital and decreased customer servicelevel with lower shipment frequencies Thus what we need to achieve is to make a goodbalance among these three dimensions and optimize the total result Logisticsmanagement in manufacturing enterprise can be measured and evaluated inparameters as follow:

 Lead-time is defined as the time from the order to the delivery.

 Delivery reliability refers to do delivery exactly at the right time that one

promised

 Delivery accuracy describes the ability to deliver the right product in the right quality

and quantity

 Storage availability describes the ability to delivery directly from the stock it also

reflected by the frequency of out of stock happening

 Flexibility refers to the ability of adjusting the delivery according to the customer

desire on delivery batch size, destinations, frequencies or documentations

 Information is about what type of information is exchanged between customer

and suppliers about delivery service

2.5.2.1 Lead-time

Lead time is defined as the time from which an order is placed until the goods aredelivered and can be seen as the total waiting time for the customers In logistic, shortand safe lead time results in higher value added for the customers While the poor

delivery performance could end up with great loss when it causes production idleness.Time based performance has became one of the most important criteria for the superlogistic achievers The goal of lead- time control is to fulfill the customer demand withinthe time they are prepared to wait Christopher (1998) has pointed out that a lot ofcompanies face the fundamental problem of the time it takes to procure, make anddelivery being longer than the time the customer prepared to wait And he named this timeperiod as the “lead time gap.

Traditionally, companies overcame this problem by forecasting the future demand andcarrying enough inventories But still due to the forecast deviation, new problems on toomuch or too little inventory are inevitable Another better way to handle the lead-timegap is to kill the problem from where it generates by shortening the logistic lead-time.Effort can be made in any of the periods of procurement, manufacture and delivery.From the inbound logistic point of view, our research target is to shorten the timespending on the procurement part by optimizing the inbound logistic solutions

2.5.2.2 Tied-up Capitals

The capitals that are tied up in the logistic operations are mainly caused by the inventory,work in process materials and the facilities that related to product holding The inventorytied up capitals because capital cost It is a kind of opportunity cost, as it cannot be used

in the circulation and creates new values for the owners Quantitatively, it equals theinterest rate multiplied by the value of the inventory

The amount of capital tied up is very much related to the service level of logistics

If the logistic service provides more frequency and reliable delivery then the inventorylevel could be reduced, so does the inventory capital tied up The lead-time also has adirect impact on the inventory level The shorter the planned lead-time is the lower thelevel of inventory

Lumsden separates the happening of capital tied-up into three categories: inventory, WIP(working in process) and the store Inventory mainly refers to the stocks in thewarehouse and the safety stock, which backup the short-term manufactory The l e v e l

of safety stock is determined by the delivery frequencies The more frequently thedelivery the lower the safety stock level is WIP include any material and semi-end

products that are under operation in the working plants Still, there are some inventories

in the selling site to avoid the out of stock called store inventory

2.5.2.3 Logistical Cost

The logistical cost happens when the logistic service providers carry out the logisticoperations It can be breakdown into several parts including handling and maintenancecost, transportation cost and control cost The handing and maintenance cost is the costassociating with holding inventories It consists of:

 Ta x e s : The tax cost is a direct levy based on the inventory level.

 In s urance : Insurance cost is heavily related to the estimated risk or explore time.

High value products have more risks of being stolen and hazardous product that arecombustible result in relatively higher insurance cost

 Obsolescenc e : refers to the deterioration of product in storage and is not covered by

 Other logi s t ical c o st

Other logistical costs may concern the information system cost It covers a wide areafrom order receipts to information management such as spending on leasing GPS (GlobalPositioning System) system The type of depot network will affect many of these costs

as well

CHAPTER 3:

ANALYSIS OF EUROWINDOW LGOGISTICS MANAGEMENT SYSTEM 3.1 BUSINESS STRUCTURE & OPERATION IN EUROWINDOW HOLDING 3.1.1 About Eurowindow Holding Company

European plastics window joint stock company (Eurowindow Holding Company) wasestablished on 29 August 2002 from the first foundation of 100% foreign investedcompany Eurowindow also officially become a public company in conformity withVietnam Investment Law on May, 2007 Main products of Eurowindow are high –classedplastic window, door and panel made of U-PVC in conformity with European standard.Additionally, Eurowindow also produces various kinds of wooden door and window,rolling door, automatic door and glass box, safety glass, article bending steel

At present, Eurowindow posses 04 factories, the factory No.1 and No 4 are located inQuang Minh Industrial Park, Melinh District, Hanoi, the factory No 3 is located in TanUyen Industrial Park, Tan Uyen District, Binh Duong Province The third factory is located

in Hoa Khanh Industrial Park, Lien Chieu District, Danang city, all Eurowindow factoriesare equipped and installed with modern production line, synchronized with highautomation with total designed capacity of more than 800,000m2 of door per year that areimported from URBAN, MACOTEC, FOLM from Germany and Italy

Consumers can find many outstanding attributes in Eurowindow products such as noisy, anti-temperature, durable under high pressure not bending and adaptable inconformity with weather condition in Vietnam Eurowindow are suitable for many kinds ofconstruction works such as villa, flats, office building, and hotel or trade center

anti-At present, Eurowindow have 03 kind of products manufactured of materials fromdifferent suppliers, that is Eurowindow, Asiawindow and Vietwindow with revenuepercentage accordingly are Eurowindow (78%), Asiawindow (10%) and Vietwindow(12%) From these data, the percentage of revenue for these products also differentbetween revenue from projects and revenue from householders, between North of Vietnamand South of Vietnam market, specifically, in the North of Vietnam, the revenue from

project account for 60% of total revenue, in the South, revenue from project account for40% of total revenue, the remaining percentage accordingly is revenue from householders.Component structures for 03 products and its suppliers for these components are illustrated

in below table:

Eurowindow (78%)

Asiawindow (10%)

Vietwindow (12%)

Steel 03 suppliers for all

The same Suppliersfor all products andsome differentsuppliers for eachkind of product

The same Suppliersfor all products andsome differentsuppliers for eachkind of product

Glass The same suppliers

for all kind ofproducts

The same suppliersfor all kind ofproducts

The same suppliersfor all kind ofproducts

Aluminum Xingfa, Kin Long, Norinco, Shueco, Fuyao/Kingtong

Figure 4: Product structure of Eurowindow

Figure 5: Factory and warehouse system of Eurowindow

Material import Dept

Export-Internal Controlling Dept

Factory

Section of controlling aluminum materials and products Technical Department

Plastics products Aluminum products

Warehousing & Material section under Factory Production Section of Factory

Sub-departments

Sections contact each

other according to kind

of products (Alu or

show job flows in

general

This Diagram also show

case study structure

about Eurowindow

case.

Financial Department