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Factors to consider while benchmarking suppliers

Discuss about the Process Based Service Composition and Verification.

The supply chains of multinational companies allow them to acquire products from suppliers all-round the world. The growing need to achieve sustainability and management the operations of supply chains require the sourcing managers to review the existing supply chains and benchmark them. They are also responsible for recognising new supply chains in order to increase their economies of scale and profit margins. However, this measurement of effectiveness of supply chains often require companies to judge several factors like inventory management and transit time (Afreen, Laila and Islam 2017). The paper would explore these aspects through the lenses of El Deporte, a retailer company in Dubai which imports sports clothes from a supplier in Algeciras, Spain and sports footwear from a supplier in New York, the United States of America. The sourcing manager under the instruction of the CEO would benchmark the supplier against each other. The next section would see the company switching over its supply chains. The shoe would be sourced from a supplier based in Sau Paulo, Brazil and the sports clothes from Mumbai, India. The logistics manager would be visiting these suppleirs to discuss issues pointed out in the paper (Arvis et al. 2014). The next section would see comparison between the marine route transit times of acquiring finished goods from all these markets to Dubai. This comparison would see forming of recommendations for the retailer to consider in regards to the suppliers.

The following are the factors which the CEO of El Deporte would expect the sourcing manager to consider while benchmarking suppliers against each other:

The first factor which a sourcing manager should consider while benchmarking suppliers is quality of the goods they supply. The case study mentions that El Deporte is engaged in retailing of sportswear and shoes from Spain and the US respectively. This means that the company is not engaged in manufacturing of these finished goods and merely acquires them from these wto suppliers. The sourcing manager while taking delivery of finished products should check the quality of the sports clothing and sports footwear. Then he should rate them against the parameters like colour, texture and other attributes mentioned while placing the orders. For example, out of 100 samples of sport clothing        tested, 10 fail to meet the expected quality parameters. The quality analysis shows that in case of sports footwear, 5 pairs turn out to be below the parameters mentioned while placing the order (Azadi et al. 2015). Then in this case, the footwear supplier gets 95 percent while the clothing supplier gets 90 percent marks.

Investigating suppliers’ supply chains

The sourcing manager should rate the suppliers on the basis of parameters of their availability, functionality and service levels. The manager while measuring the availability of the products of the two suppliers would measure the number times they have failed to supply orders on time. For example, if the American supplier had failed to deliver order 5 times out of 100 orders, it should be rated 95. Again, if the sports clothes suppliers had failed to deliver 2 orders per 100 orders, he should be marked 98. The functionality would be measured on the grounds of number of customer complaints received against their orders, once again measured on the yardstick of 100. If the customers had lodged 10 complaints against the shoes, the American supplier should be rated 90 while the Spanish clothes supplier should be rated 85 if there have been 15 complaints from customers (Bayne, Schepis and Purchase 2017). Service quality should be measured on the basis of number of times the suppliers replaced the defective pieces upon lodging complains by the company on behalf of the customers.

El Deporte should investigate into the supply chains of the American and the Spanish supplier. This measure is crucial in forecasting the future business risks that El Deporte can face due to the business conduct of its suppliers. The company is based in Dubai where the corruption rate is very high in the corporate sector. The legal system is similar very strict to curb or at least minimise the corruption. The companies have to pay heavy fine and face legal charges if caught for corruption. This means that the company should conduct thorough investigation ion the actual business operations of its American shoe supplier and Spanish sportswear supplier (Beckers et al. 2014). The suppliers of the sports clothes and sports footwear have their own production facilities and in turn their own supply chains. El Deporte should investigate into these supply chains as well to ensure that the ethical business operations of these suppliers do not have negative impact on its business generations. The second reason for carrying out investigation into the activities of suppliers is the maintenance of goodwill in the market. This is because if unethical activities of the suppliers are published in the market, it would also hamper the goodwill of El Deporte and have dire impact on its business generation (Brandenburg et al. 2014).

The next benchmark which El Deporte can set for its suppliers is future business prospects. The case study mentions that El Deporte is a retailer of sports clothes and shoes. This means that the company acquires these two types of finished products from the suppliers. It can also be pointed out that the company in future may enter into production of these sports clothes and shoes to expand its product line. This means that the company might enter into partnership with either of its tow suppliers (Christopher 2016). Hence, while benchmarking, the sourcing manager should quantify the present strengths and weaknesses of the two suppliers and their ability to contribute towards the future business generations of the company. While judging the future business prospects, the sourcing manager should consider aspects like present goodwill of the suppliers, their diversity management standards and technological prowess. He should once again rate them out of 100 and present the ratings to the CEO (Coyle et al. 2016).

Assessing future business prospects

The sourcing manager of El Deporte should measure the share of the suppliers in the revenue generation of the company per month and then sum up the monthly shares. This would enable him to calculate the contribution of the two suppliers in the revenue generation of the company. Then this annual revenue generation should be considered against the loss of business the company had faced due to defective finished products delivered by them, once again on the parameter of 100. For example, the annual contribution of the American shoe supplier is $1000 and the Spanish sports clothes supplier is $ 2000. El Deporte suffered loss of $200 for the American shoe supplier and $600 for the supply of defective sports clothes by the Spanish supplier (Ducruet 2016). This means the American supplier is responsible for 20 percent while the Spanish supplier is responsible for 30 percent loss in spite of being responsible for greater share in the revenue. This parameter is of utmost importance because it can direct future business decisions. For example, if the apex management finds that a supplier has greater share in the revenue generation of the company but causes heavy loss due to defective deliveries of finished products (the Spanish supplier in this case), the company can acquire the supplier. This would ensure that the productivity of the supplier can be controlled to reduce the ratio defective production. The company might also consider replacing the supplier with another supplier to reduce losses it incurs due to defective finished products produced by the supplier (Ducruet 2016).

The sourcing of the sports clothing would be done from Mumbai, India and sports footwear would be sourced from Sau Paulo, Brazil. The logistics manager would visit India and Brazil to meet these two suppliers. He would raise and discuss the following key issues while his visit to these two suppliers:

The first issue which the logistics manager would raise is political situation and stability. The logistics manager would meet the senior management of the two supplying companies and discuss about the bilateral pacts these two countries have with the United Arab Emirates. This discussion is of utmost importance because political tension between the participating countries namely Brazil, India and the UAE can have dire impact on the trade. The logistics manager would discuss the labour laws and the power of the trade unions to impact or disrupt the productivity of the suppliers (Fahimnia, Sarkis and Davarzani 2015). The customs laws, export and import laws and other laws pertaining to the textile business would be discussed. This outcome of the discussion would enable El Deporte to form policies to import sports textile and footwear from these two markets. The amounts pertaining to customs would also reflect in its financial estimation. Mumbai, the country’s political hub has been under the lenses of terrorism, local violence and crime. These political issues often result in ravaging of textile factories and warehouses. These activities would not only lead to loss of resources and also result in disruption of supply of sports clothes to El Deporte, thus hitting its retail business. This shows that the logistics manager should discuss the future opportunities of such incidences and try to find out contingency ways to deal with them or at least, minimise their losses due to their impact (Govindan, Soleimani and Kannan 2015).

Calculating suppliers’ contribution to revenue generation

The logistics manager should give importance to economic facilities and challenges which El Deporte would face while importing sports clothes and shoes from India and Brazil respectively. Mumbai and Sau Paulo are extremely commercial hubs of India and Brazil respectively. Thus the logistics manager should investigate the economic advantages which El Depoete can avail from these two cities. Mumbai and Sau Paulo are homes to several multinational banks and financial institutions. Thus, they would as a result provide these two suppliers with excellent financial support which would ultimately enable El Depotre to get continuous supply of finished goods from them (Grayson and Hodges 2017). The logistics manager should then look into the logistics facilities which the cities can offer to El Deporte, like cheaper logistics facilities. One can also point out that Mumbai is one of the most important ports of Asia while handles an immense number of commercial cargo. The logistics manager should as a result gain information the cost of transporting sports clothes via sea to Jabel Ali sea port, Dubai. As far as Sau Paulo is concerned, the city does not have a harbour for export and import of products. The logistics manager should make enquiries about the logistics facilities which El Deporte can use to obtain sports shoes from Sau Paulo at economic rates (Hajmohammad and Vachon, 2016). These economic facilities would impact the logistics expenditure which the company would have to bear to obtain finished goods from these two cities.

The logistics manager must enquire about the production capacities and facilities of the two new suppliers based in Mumbai and Sau Paulo. The manager should visit their production facilities to ensure that they would be able to produce it with high quality products. The logistics manager should check the rate of machinery breakdown to ensure that the new suppliers face minimum wastage of production due to machinery breakdown (Heizer 2016). This information would be very important to judge whether they would be able to raise their productivity, if required to meet sudden increase in the demand for sports clothes and footwear. The logistics manager should also check the warehousing facilities which these two suppliers maintain. He must ensure that they manage their stocks of raw materials and finished goods efficiently to maintain high liquidity in their funds (Jacobs, Chase and Lummus 2014).

The logistics manager of El Deoprte should check the financial capabilities of the two newly suppliers based in Brazil and Mumbai. The manager must obtain the past financial statements from the management and check their financial performances, He should discuss aspects like the sources of finance of the suppliers, their expenditures and investments. The financial information of the suppliers would reveal the efficiency levels of their production. El Deporte must take into account this criterion to finalise on the decision on buying sports clothes and shoes from the suppliers of Mumbai and Sau Paulo respectively (Jia, et al. 2015).

Key issues to consider while visiting suppliers

The logistics manager should check the risk management methods which the two suppliers use while continuing their business operations. The manager of El Deoprte should check the precautions which the suppliers maintain at their warehouses like providing sufficient lighting and proper storage of chemicals used in the sports clothes and shoes. He should check the past records of accidents and deaths, if any and the steps which the management took after such incidences. The manager should also check the standards the suppliers maintain while storing raw materials, work in progress and finished goods in their warehouses (Jinno, Abe and Iizuka 2017).

The logistics manager should enquire about the sustainability of operations of the two suppliers.  He should judge the sustainability of operations based on his findings of their production capacity, risk management and financial capacity. The managers should also find out whether the suppliers from which the Indian and the Brazilian supplier acquire their raw material carry on business operations ethically. He should find out the goodwill valuation both from the apex managers and their customers, if possible. He should also gain information about waste management and environmental sustainability measures adopted by these companies (Jondle, Ardichvili and Mitchell 2014).

The following table would compare the transit time by sea to import products from Algeciras, Spain, New York, the United States of America, Mumbai, India and Sau Paulo, Brazil.

Comparison sheet showing time required to import sports clothes and sports footwear

Algeciras, Spain (sports clothing)(days)

Mumbai, India (sports clothing)(days)

Time saved(days)

Percentage of time saved

New York, the United States of America (sports footwear)(days)

Sau Paulo, Brazil.(sports footwear)(days)

Time saved(days)

Percentage of time saved

Jebel Ali

17

5

12

71%

30

30

0

0%


The above table clearly shows that the El Deporte to import sports clothing from Algeciras, Spain would take 17 days by sea. The import of clothing from Mumbai, India would take just 5 days which means the company can get the delivery in 71 percent less time. The time required to import sports footwear from New York, the United States of America would require 30 days (searates.com 2018). The company would require a 30 days to import sport footwear cargo form Sau Paulo, Brazil. This means that the transit time required to get sports footwear from the new supplier based in Brazil would be the same (Long and Young 2016).

This differences in the transit times of importing sports clothing and sport footwear from the new suppliers would have serious business implications. The company would have to change the period for which it holds the finished goods in Dubai (searates.com 2018). The company normally holds stock of clothing for next 4 weeks to meet the sales requirements while importing the same from the Spanish supplier. The time reserved holding footwear was 6 weeks in advance when El Deporte used to import it from the supplier based in New York. The above table shows that the under the new supply system the time required to obtain supply of clothes from India has decreased to 5.6 days while the time required to acquire footwear from Brazil remains the same. This means that the company should increase the advance holding of footwear and decrease the advance holding of sports clothes (Monczka et al. 2015).

The following are the recommendations which can be made to El Deporte regarding holding of inventories of shoes and textiles under the new supply chains:

El Deporte as per the above discussion should increase its holding of footwear and decrease it’s holding of sports clothing. This means that the company would save the amount of money it used to allocate towards holding of the sports clothing. The company can allocate the amount saved to increase its holding of sports footwear. This would allow the company to curb the sudden rise of cost it would bear as a result of the requirement to increase its stock of footwear.

The above transit chart shows that if El Deporte purchases clothes from Mumbai,. It would only 5 days for the supply to reach Dubai which means the company can order more stock. The minimum cost of importing sports clothes from Algeciras is USD 900 approximately while the cost of importing clothes from the new supplier based in Mumbai is around USD 675. This means by importing clothes from Mumbai, the company would save around USD 225. The company can used the amount saved to acquire more stock of sports clothes from Mumbai. This would allow it to use the same amount of expenditure to buy more finished products, thus increasing the value of its purchase. Moreover, by ordering more stock of finished goods, the company would be able to accumulate contingency stocks of goods.

One can also recommend that El Deporte should shift its sports shoe supply chain in India as well. The above chart shows that by shifting the shoe supplier from New York, the United of America to Sau Paulo, Brazil the company did not gain any clear benefit on transit cost. Moreover, Sau Paulo has no sea port of its own unlike the other three cities which means the El Deporte would have to bear extra cost to transport sports footwear to Santos, the nearest sea port. Again, transporting shoes to Dubai from India is far cheaper than the other cities. India is a huge supply chains of shoes and footwear which supply to the leadership sportswear brands, many of which are based in the US. Thus, El Deporte should utilise this strategy of the leading shoe companies and shifts its supply chain to India as well. A cargo form the USA carrying shoes take USD 845 while a cargo of sports clothes from Spain would take around USD 675, which sums to USD 1520 approximately. The company against this huge expenditure can import both the shoes and the clothes by spending USD 450. Thus, by shifting the shoe supply chain into India, the company would be able to purchase high quality shoes at lower rates, thus boosting its economies of scale.

Conclusion:

The above discussion clearly shows that the El Deporte should keep on managing its supply chains to ensure that they are profitable. It must ensure to restructure its supply chain and eliminate suppliers which indulge into unethical and illegal activities. The company should verify the business operations of all the suppliers of its suppliers. They should revamp their supply chains to boost their own effectiveness and profitability. The companies should not restrict themselves to the profitability of their suppliers while benchmarking them. They should also take into account transit time required to transport finished goods from particular suppliers in the pursuit of the inventory management practices. The companies should shift their supply chains, at least partially to ensure that they are able to minimise the transport time and related logistics costs. These decisions regarding supply chains should be conducted at the apex level and the top managers should be placed in charge of reviewing supply chains. The logistics managers should visit new suppliers in person to discuss business opportunities. They must also take into account the issues companies can face while operating in these markets.

References:

Afreen, A., Laila, N. and Islam, M.S., 2017. Process Based Service Composition and Verification (Doctoral dissertation, East West University).

Arvis, J.F., Saslavsky, D., Ojala, L., Shepherd, B., Busch, C. and Raj, A., 2014. Connecting to compete 2014: trade logistics in the global economy--the logistics performance index and its indicators.

Azadi, M., Jafarian, M., Saen, R.F. and Mirhedayatian, S.M., 2015. A new fuzzy DEA model for evaluation of efficiency and effectiveness of suppliers in sustainable supply chain management context. Computers & Operations Research, 54, pp.274-285.

Bayne, L., Schepis, D. and Purchase, S., 2017. A framework for understanding strategic network performance: Exploring efficiency and effectiveness at the network level. Industrial Marketing Management, 67, pp.134-147.

Beckers, K., Côté, I., Frese, T., Hatebur, D. and Heisel, M., 2014, September. A Structured Validation and Verification Method for Automotive Systems Considering the OEM/Supplier Interface. In International Conference on Computer Safety, Reliability, and Security (pp. 90-108). Springer, Cham.

Brandenburg, M., Govindan, K., Sarkis, J. and Seuring, S., 2014. Quantitative models for sustainable supply chain management: Developments and directions. European Journal of Operational Research, 233(2), pp.299-312.

Christopher, M., 2016. Logistics & supply chain management. Pearson UK.

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Stadtler, H., 2015. Supply chain management: An overview. In Supply chain management and advanced planning (pp. 3-28). Springer, Berlin, Heidelberg.

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