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Spirit mixers industry - The component activities of supply chain management

For any given product or service, it is important to think through the supply chain considerations at the beginning. How a service is designed and how products are engineered and developed can have an effect on materials management, as these activities determine the structure of the supply process.

The design of the bottle, the components in the drink and reaching the intended market all have implications for logistics. How many bottles can be packed together, how they can be transported, which outlets can stock them, how they should be presented - are all supply chain concerns?

The tolerances and specifications of products and the components from which they are made can be defined in such detail that they can only be obtained from a few suppliers. For example, a blended whisky would seriously change its character if one of the key malts in the blend ceased to be manufactured, or stocks ran out. One question in the context of the design activities is the extent to which one strives for the standardisation of components.

If new components are specified for each new end product being developed, then this irrevocably leads to a very extensive "shopping list" of requirements from suppliers. This will have considerable consequences for the degree of sophistication of the materials planning and control system. A system designed to cope with a premium blended whisky will be more complex than that for a spirit mixer.

The production department has a huge impact on the ability of the logistics function to perform. Production will usually aim for a high-capacity utilisation, ie they want the production line to run as constantly as possible, without disruptions. If a bottling line ran out of bottles, or if it broke down because of a faulty bottle smashing and ruining equipment, this would undermine the goal. A production manager will take certain measures to prevent such disruptions, for example by building up buffer stock but this is undesirable, and the logistics function should be examined to rectify any lack of smoothness in the materials flow. Keeping stock in buffers might reduce the threat of production stops, but the underlying cause of the problem remains and it might reassure one department whilst undermining the profitability of the overall organisation.

The supply chain trigger hopefully is an order from the customer which forms a short-term sales plan and the related production plan, ie how much will be sold and what and how much should be made. If the sales organisation, for the sake of obtaining an order, promises a delivery time shorter than the internal production lead times, ie the time it takes to make the product, materials problems are likely to occur! This frequently results in "rush work" in production planning, production and purchasing. It leads to a situation in which purchasing must exert considerable pressure on suppliers to get the required materials earlier and often at considerable extra costs. For example, a Scottish electronics company had to send a person to the Far East to pick up components in order to complete products to enable them to be sent to a customer.

A supply chain perspective is useful in logistics since the relationship between the supplier and the customer can make important contributions to the improvement of the materials flow management. The same applies to the involvement of customer - if they are willing to give up or adjust, for instance, with regard to packaging and minimum delivery quantities - considerable savings or simplification of the materials management can be achieved.

The variety of terms in supply chain management can be quite confusing. People use different terms for similar processes, eg integrated logistics means much the same as supply chain management. Some authors and managers differentiate between materials management and physical distribution. As a rule, however, materials management encompasses the materials flow between a supplier and the final assembly. Physical distribution focuses on the optimisation of the process between goods being "released" by production, delivered to the customer and installed.

(Source: Shaw, N. (2010). Operations Management, Heriot-Watt Management Programme)

To keep up with global competition and tap into the abilities of world-class suppliers, companies have to put in place sourcing systems.

Critically analyse the sourcing strategies that can be applied by the companies in the spirit mixers industry and the advantages that can accrue from each strategy.