báo cáo kinh tế quốc tế - đại học ngoại thương Analyzing supply chain of vietnam beverage

LIST OF PICTURESPicture 1.1: Structure of supply chainPicture 1.2: Model of manufacturer storage with direct shipping Picture 1.3: Model of manufacturer storage with direct shipping, in-

SCHOOL OF ECONOMICS AND INTERNATIONAL BUSINESS

-*** -GRADUATION THESIS Major: International Business Economics

ANALYZING SUPPLY CHAIN OF VIETNAM

CRM Customer Relationship ManagementSRM Supplier Relationship ManagementISCM Internal Supply Chain ManagementRFQ Request For Quote

GDP Gross Domestic ProductSOEs State-owned EnterprisesFDI Foreign Direct InvestmentCSD Carbonated soft drinks

M&A Merges and AcquisitionsVBA Vietnam Beverages AssociationERP Enterprise Resource PlanningAPS Advanced Planning and SchedulingEAI Enterprise Application IntergrationBPA Business Process Automation3PL Third-party Logistics

4PL Fourth-party Logistics

EOQ Economic Order QuantityPOQ Production Order QuantityUSD United State Dollar

LIST OF PICTURESPicture 1.1: Structure of supply chain

Picture 1.2: Model of manufacturer storage with direct shipping

Picture 1.3: Model of manufacturer storage with direct shipping, in-transit merge

Picture 1.4: Distributor storage with carrier delivery

Picture 1.5: Distributor storage with last-mile delivery

Picture 1.6: model of manufacturer or distributor storage with customer pickup

Picture 2.1: Vietnam beverage distribution network

Picture 2.2: Relationship between objects participating in transportation network

LIST OF FIGURESFigure 2.1: Vietnam yearly population, 2015-2020f

Figure 2.2: Nominal GDP and GDP growth in Vietnam, 2015-2022f Figure 2.3: Nominal GDP per capital in Vietnam, 2013-2022f

Figure 2.4: Beverages consumption in Vietnam, 2015-2022f

Figure 2.5: Beverages revenue in Vietnam, 2015-2022f

Figure 2.6: Non-alcoholic drinks consumption in Vietnam, 2015-2022f Figure 2.7: Non-alcoholic drinks revenue in Vietnam, 2015-2022f Figure 2.8: Alcoholic drinks revenue in Vietnam, 2015-2022f

Figure 2.9: Alcoholic drinks consumption in Vietnam, 2015-2022f

1 Rationale

Recently, the Vietnam Beverage industry (refers to as Vietnam Beer – Alcohol

- Beverage industry) has been one of the industries that make importantcontributions to Vietnamese socio-economic development Vietnam is currentlyrated as one of the markets with potential consumption of beverages According to

EU –Vietnam Business Network, by 2020, the beverage consumption is forecasted

to be over 109 billion liters The industry is characterized by a growing population

as well as a rising number of middle income individuals

For beverages in general, ensuring of quality and quantity of products in theprocess from input materials to delivering to final consumers is always a difficultproblem for individuals and businesses Therefore, Vietnamese beverage companiesneed to find a partner that provides logistics services and supply chain, meeting allthe strict requirements of beverage industry Moreover, foreign beverage companieshave involved and expanded to Vietnam beverage market, creating a competitiveenvironment It has put local beverage manufactures into certain difficulties due tolimited budget and expertise in establishing brand names and supply chain

Besides an increase in population, Vietnamese consumers are increasinglyhealth-conscious It requires manufacturers starting thinking market offerings,which calibrate towards heathier product portlio such as products of natural origin,fruit juices or herbal teas The development of the tourism industry and retailingnetwork in Vietnam also plays an important role in growth of beverages industry asthey created further demands for high-end drink segments as well as improved theavailability of beverage product lines through modern trade channels

According to evaluation of Vietnam Beverage Association (VBA), recently,most of companies in the beverage industry have their own distribution channels.However, the connection between businesses and businesses, between manufacturerand distributors to supply products to the market is very limited To compete withvarious foreign beverages corporations, develop production and circulation ofgoods, Vietnam beverage companies Vietnamese beverages enterprises need to joinhands to complete an integrated supply chain between production and distribution

to meet fully and promptly consumer demands Starting from that fact, and throughthe process of studying at Foreign Trade University and searching information ofVietnam beverage industry, I desire to choose the topic "Analyzing supply chain ofVietnam beverages industry” as my graduation thesis topic.

2 Literature review

Analyzing the supply chain of corporations, pointing out the situation andproposing some recommendations have not been a new topic in recent years,especially when the supply chain increasingly represents its important role inminimizing costs, maximizing profits and enhancing competitiveness forbusinesses Therefore, the topic of supply chain is more and more interested,analyzed and selected as the topic of research on dissertations and specializedtopics In recent years, there have been many research topics about supply chainanalysis of businesses in general and enterprises in food and drink in particular.Some reseaches are introducted as follows:

Firstly, Sunil Chopra, Peter Meindl (2007) provided an understanding of allthe key areas which are the strategic role of a supply chain, the key strategic drivers

of supply chain performance and analytic methodologies for supply chain analysis;and their interrelationships

This book gives us a conceptual understanding of supply chain and the variousissues that must be taken into account when designing, planning and operating asupply chain The authors have researched and introduced the strategic importance

of supply chain design, planning and operation for every firm Within the strategicframework, they have conveyed how the supply chain performance’s drivers(facilities, inventory, transportation, information, sourcing and pricing) can be used

on conceptual and practical levels in a supply chain This book provides readerswith practical managerial levers and concepts that may be used to improve supplychain performance Moreover, the authors present an understanding of analyticmethodologies, which are used in each managerial context and support themanagerial levers for improvement The strategic frameworks and conceptsdiscussed in the book are tied together through a variety of examples and casestudies to illustrate the diversity and importance of the supply chain in the global

economy Therefore, in general, this book and its researches are the theoretical basisfor academic audiences to complete their research and for practitioners (firms andorganizations) to develop their supply chain and supply chain management Inparticularly, thank to this book, I can complete chapter 1 of my dissertation.

Secondly, in the report of Vietnam beverage industry in 2016 by EU-VietnamBusiness network, the author analyzed overview of Vietnam’s economy byproviding indicators and data of population, geography, gross domestic products,foreign direct investment and Vietnamese consumption habits from 2013 to 2016,and then point out the direction of Vietnamese economy and the movement ofindustries Moreover, it focuses on analyzing Vietnam beverage industry: currentstatus, analysis of different drinks sectors’ development, market trends and somekey growth drivers It has provided knowledge and information of not onlyconsumers and distributors but also regulatory and legal framework at Vietnambeverage market

Through collecting activities data of Vietnam beverage industry and thenanalyzing them, this report has introduced the overview of Vietnam in general andoverview of the beverage industry in Vietnam in particular, given some case studiesand competition analysis of Vietnam beverage companies This is basis for firmsand organizations to research and develop their products as well as plan thestrategies to take the competitive advantage in the global economy

Thirdly, Handfield and Bechtel (2002) introduced a model to build keyrelationships between suppliers and buyers based on credibility, suppliers forced toinvest in financial resources and human resources, buyers must consider contractscarefully to control the dependent level related to relationship The model thatpresents the dependent variable is the responsibility of the members in the supplychain, through independent variables, the level of trust and dependence on thebuyer, the contract, the level of investment in fixed assets, human resources Theauthors also assume that all dependent variables are positively related to supplychain responsibility except the buyer's dependence through nine hypotheses Theresults show that even in cases where demand exceeds supply capacity, scarcity

occurs and then the trust can improve supplier responsibility and enhancecooperation in the supply chain

Finally, Le Thuy, in her article in 2017, talked about a high increase ininventory and fierce competition in Vietnam beverage market Vietnamese beverageenterprises are in increasingly difficult situation, while the beverage market is stillconsidered a fertile land of foreign businesses It also mentioned difficulties ofVietnam beverage enterprises while the battle for market share in the beveragemarket has not shown signs of cooling down with over 1,800 beveragemanufactures Therefore, the problem for Vietnam beverage corporations is that ifthey do not improve product’s quality and design, find their own direction, it isdifficult for the domestic beverage industry to exist Moreover, there are some otherarticles gave current information of Vietnam beverage industry, its difficulties andproblems, and plans of Government and Corporations to complete its supply chain.Therefore, there were load of research that approached the supply chain indifferent directions However, according to results of books, reports and articles,most of them mentioned current situation and future challenges of Vietnambeverage enterprises, there are still some spaces to research and suggestrecommendations for its supply chain All above knowledge and data mentioned arethe theoretical basis of my research and study of supply chain in Vietnam beverageindustry

3 Objective and tasks

The topic "Analyzing supply chain of Vietnam beverages industry” is donewith the objective of analyzing current status of and suggest recommendations toimprove supply chain of Vietnam beverage industry In order to achieve the aboveobjective, the thesis determines some detailed tasks as follows:

− Contribute to systematize the theoretical basis and practical basis of the supplychain in general and more specifically about Vietnam beverages industry

− Analyze supply chain of Vietnam beverages industry and potential development ofsupply chain design in Vietnam beverage industry

− As a basis for future researches on supply chain and supply chain management ofcorporations or industries

4 Subject and scope

Subject of the thesis is supply chain of Vietnam beverages industry The thesisclarifies the basics of supply chain, how to design, operate and develop supplychain of Vietnam beverage industry from 2015 to 2018

5 Methology

The thesis is carried out based on not only the manipulation of theories andperspectives of the world's experts on researching and developing supply chain butalso perspectives and guidelines of Vietnam Government of the development ofbeverage corporations The thesis will use methods of data collection, analysis,synthesis, statistics, comparison, interpretation, explanation, induction incombination between theory and practice

CHAPTER 1: THEORETICAL BASIS OF SUPPLY CHAIN

1 Overview of supply chain

1 Introduction to supply chain

1 Definition

About fifty years ago, it was obvious that if the company produces someitems, they would be purchased and consumed eventually The pace of changes ofhabits and technology was slow enough to allow any product in almost any quantity

to be sold eventually

However, time has changed The information technology accelerated, marketsglobalized, political economies stabilized, boundaries opened and the worldsuddenly became smaller and flatter Consequently, increasing number ofmultinational companies appeared and started competing on a global basis Oncethey realized that their survival is under threat, they began to modify The productshave changed quickly, followwing the trends in technology and consumers’ taste As

a result, the habits of consumers are changing quickly and tending to be elusive.This made the companies to be more careful in planning and organizing, since theproducts are becoming obsolete very quickly In that situation, it is paramount foreach company to stay innovative, lean and timely responsive to complication in themarket In order to take competitive advantages, companies have to take intoaccount a lot of factors with purpose of minimining the cost and maximizing profit

It requires them to pay more attention on flow of material movement; process ofproduction, design, packaging, distribution and storage; effective method ofcollecting customers’ data and demand There is no choice for companies butbuilding their own supply chain Consequently, continuous development of supplychain and techniques of managing it all is widely promoted all over the world

In a typical supply chain, materials are purchased from one supplier or more,the parts are produced at one factory or more, then final products are delivered towarehouse to store in the intermediate stage and finally to retailers and customers.The supply chains have to consider the interaction of different links in the supplychain The development and functioning of Supply Chains have become importantsubjects for academician with a resultant increase of definitions and phrases

“The supply chain is a chain or a process that begins with raw materials untilfinal products and services are delivered to the end consumers A supply chain is anetwork of facilities and distribution options that performs the functions ofprocurement of materials, transformation of these materials into intermediate andfinished products, and the distribution of these finished products to customers.Supply chains exist in both service and manufacturing organizations, although thecomplexity of the chain may vary greatly from industry to industry and firm tofirm” (Ganeshan and Harrison, 1995).

In term of structure, supply chain is a network of organizations involved instages, its diffirent downstream or upstream activities, to create value for theproducts and services that satisfies customsers’ demand (Hartmut Stadtler,Christoph Kilger, 2000) In other words, supply chain includes all entities that bothdirectly and indirectly participate in meeting consumers’ demand In term of broadunderstanding, a supply chain includes two or more separate legally-establishedbusinesses which are linked by material flow, information flow and financial flow.The entities involved in the supply chain include producers, vendors, warehouses,transportation companies, distribution centers, and retailers In each separateorganization, supply chain also includes all functions related to receive, handle withorder Otherwise, the concept of supply chain is also applied for multinationalcorporations and their subsidiaries in different countries in the world The effectivecombination of below flows is a big challenge for multinational corporations;however, process of making decisions in these corporations is easier due to the samesenior manager apparatus

On the other hand, considering the supply chain in the form of a circulationflow, the supply chain is a network of closely coordinated organizations to improveflow of information and material between supplier and customers at the lowest costwith the fastest speed (Manish Govil, Jean Marie Proth, Supply chain design andmanagement, Academic press, 2002) The core objective of a supply chain ismeeting customers’ demand in progress of making profit for itself Customer is anessential factor in a supplu chain Activity of a supply chain begins with a customerdemand and does not finish until customers make payment of their order The use of

the term “network” shows that businesses participating in the supply chain are notonly companies carrying out mutual activites but also ones competing with eachother in providing the same product or service Supply chain is a unified entity with

a unique development strategy

Althought there are many different definitions and phrases of the supply chain,

in most generally, the supply chain is a group of three or more organizations direcltyconnected by one or more downstream and upstream of products, services, financeand information from a supplier to its customers

2 Characteristics

Supply chains in the world have had diversified structure, each of them aims

to provide customers with different values, but they have still shared thecharacteristics of a typical one If we are looking for a basic feature of a supplychain, it shall be balance and interaction between responsibility and efficiency.Responsibility is the ability to respond to activities such as ensuring short deliverytimes, highly innovative product design, and high quality of service Therefore, it isoften accompanied by high costs For example, to meet orders in differentquantities, production capacity must be enhanced, which means an increase in costs.Increasing costs leads to a second concept of supply chain’s efficiency Theefficiency is the cost of production and distribution Increasing costs shall reduceefficiency, in other words, all strategic choices with purpose of enhancingresponsibility shall lead to a reduction in the efficiency of the supply chain

Another characteristic of current supply chain is the most powerful memberwill impose strategy on supply chain Exception for powerful members in thesupply chain, it is difficult to point out a supply chain whose members cooperatewith fair terms and conditions

In the supply chain, the movement of physical flows and information flow isalso a distinctive feature The information flow moves in the opposite direction ofthe supply chain while the physical flow moves downstream Information istransmitted from customers to retailers, manufacturers, transport service providers,material suppliers That is how a production system still works for decades What isdifferent in the supply chain is that information is transmitted to members one at atime and it is necessary for their own decision-making process

3 Classification

There are many criteria to classify the supply chain, however in all of them,there are two criteria that are considered the most basic and typical The firstcriterion is based on time calculation to carry out activities related to consumers’sdemand In addition, the second one is based on the structure of the supply chain.a) First criterion

Based on time calculation to carry out activities related to consumers’ demand,the supply chain is divided into three categories: push supply chain, pull supplychain and push-pull supply chain

i) Push supply chain

In push supply chain, all decisions, related to production and distribution, arebased on long-term predictions Typically, manufacturerons just rely on retailers’orders to forecast customer demand Therefore, push supply chain takes a long time

to respond to market changes Bullwhip effect is common phenomenon in the pushsupply chain, which fluctuations in orders that producers receive from retailers andwarehouses are often larger than actual ones in consumer demand It often leads tofalse predictions about actual demand of products, leading to inaccurate productionplans, increasing inventory shall link to an increase in total costs and difficulty inresources management

ii) Pull supply chain

Different from the push supply chain, in pull suppy chain, because productionand distribution activities are dominated by demand factors, they are tied to theactual needs of customers In the pure pull one, corporations shall maintaininventory at level of zero and only produce when there is an order This type ofsuppy chain really appeals to producers since they can keep inventory at zero,reduce inventory cost, reduce the impact of Bullwhip effect and take a chance toincrease service level In fact, however, the construction and operation of the pullsupply chain is difficult as the time required for an order is too long, leading toobstacles in responding to information about customer demand The pull one doesnot take advantage of economics of scale, the batch production of many items andthe efficient delivery is difficult to achieve

iii) Push-pull supply chain

In this kind of supply chain, some stages are driven by push strategy, often inthe early stages of the supply chain, while the rest are developed with pull strategy.

In push-pull supply chain, the manufactures produce orders (build to order) Itmeans that inventory components are managed based on prediction results but finalproducts are made corresponding to the numbers of orders The process of pushing

in the supply chain is the part of the operation of the component manufacturers thatprovide assembly; the pulling process starts from assembly operations and is based

on the actual demand of customers In fact, demand for a type of component is togather the demand of many finished products that use it The uncertainty of thedemand for components will be smaller than the demand uncertainty for the finalproduct, which ensures a certain reduction in the number of inventory

b) Second criterion

Based on the structure, the hard supply chain is devided into four categories:build- to-stock, configure-to-order, build-to-order, and engineer-to-order

i) Build-to-stock supply chain

The final products are manufactured with the standard amount of materialsbefore orders Build-to-stock supply chain has the shortest response time tocustomer requirements Customers make an order and are met almost immediatelyfrom the warehouses or retail stores Because customers appreciate the ability torespond quickly, products randomly purchased by customers are often providedthrough the build-to-stock supply chain However, it is lack of selectivity;customers just choose the available products on shelves that are supplied bymanufacturers Important parts and components such as aircraft components areoften supplied under this type of supply chain Another disadvantage of the block-to-order is that products produced are based on prediction, so all errors in prediction

at any stages affect the whole supply chain If products are in an outdated ordefective state, it is mandatory to recover it at a high cost Large amount ofinventory shall take business into a risk situation, lead to an ineffective business and

is costly to reproduct In case of low amount of components reserve, orderexecution time of the entire supply chain will be prolonged

ii) Configure-to-order supply chain

The configure-to-order supply chain produces components first according tothe push process and carries out orders according to customer requirements Thus,the advantage is that producers will provide diversified choices for customers;otherwise, they have to sacrifice the ability to execute orders immediately Forexample, in the automobile industry, manufacturers and distributors are in theprocess of completing the Configure-to-order suppy chain in order to providecustomers more choices about color and component combinations Despite ofdriving away immediately after placing an order customers have to wait for theproduct to be manufactured according to their demand The key issue in configure-to-order supply chain is response time In comparison with Build-to-store supplychain, configure-to-order appear delays, the manufacture is not bound by thefinished product until they receive an order Total amount of inventory shall besignificantly reduced due to abundance of components or modules lower than finalproducts Manufacturers shall only need to anticipate demand and make a plan atcomponent level, minimizing uncertainty.

iii) Build-to-order supply chain

In the build-to-order suppy chain, customer requirements are concerned fromthe beginning of the production process Products in supply chain are personalized

to the highest level Build-to-order is committed to providing separate components

to every order, sometimes upstream along the supply chain When requirements areestablished, the supply chain determines the number of products and time of

delivery Customers in the build-to-order supply chain must wait the entire time to

receive products from the production of components to assembly of finishedproducts Therefore, products in build-to-order supply chain are usuallymanufactured after receiving many orders to avoid fluctuations in production rates

and demand Build-to-order supply chain helps producers and distributors to minize

risks and reduce inventory

iv) Engineer-to-order supply chain

Products are manufactured and assembled with separate components anddesigns Products in this supply chain are highly individualized are often used for

specific needs It is a relatively long time to carry out orders In addition, logisticsacitivity and planning are often complicated because they are associated with asingle order.

4 Objectives and roles of supply chain

The objective of the supply chain is effective and efficient all over the system;the total cost of the entire system from transportation, distribution to raw materialinventory, production inventory and finished products, needs to be minimized Inother words, the goal of every supply chain is to maximize the value created for theentire system The value of the supply chain is the difference between the value ofthe final product to the customer and the supply chain's effort to meet customerdemand For most commercial supply chains, value is closely related to supplychain benefits, the difference between the revenue that customers pay for thecompany to use products or services and the total cost of whole supply chain Forexample, customers who buy computers from Asus have to pay USD 1,500,representing the revenue that the supply chain receives Asus and other stages of thesupply chain incurred costs to collect information, produce parts and products, storethem, transport, finance transfers The difference between the USD 1,500 thatcustomers pay and the total costs incurred in the supply chain of computers fromproduction to distrubution to customers is supply chain profits The profitability ofthe supply chain is the total profits shared throughout the chain The higher theprofitability of the supply chain is, the greater the success of the supply chain is.The success of the supply chain should be measured from the profit perspective ofthe entire supply chain, not at its each individual stage

An efficient supply chain is really a competitive advantage of the companies,which decide their success or failure The quality of the supply chain greatly affectsthe financial results as well as other competitive advantages of the business such as

cost, quality, order fulfillment time and flexibility Thanks to the supply chain, raw

materials are imported at the right time, in the right quantity, significantly reduce ininventory; final products are delivered to consumers in a reasonable time, at the

lowest cost Thanks to the information flow in the supply chain, producers get

feedback from customers, helping forecasts to be more accurate; develop effective

production plans, improve quality of current products and service as well as design

new product The sharing of information and close cooperation among members

helps to enhance the value of the supply chain and each company’s benefit

1.1.1 Comparision between supply chain and value chain

The value chain of a business according to Michael Porter's statement includesmain and supporting activities that create a competitive advantage whenappropriately configured An effective value chain will generate many profits Wecan see the connection between supply chain and value chain In general, supplychain and value chain are a combination of many organizations to meed customerdemand They are extensive business models with unified business processes topromote products and finances in a certain direction However, there are basicdifferences between supply chain and value chain

Firstly, based on concepts, while the value chain consists of main andcomplementary activities, the supply chain only includes key activities or valuechains’ operations The supply chain can be understood as a component of the valuechain Secondly, when looking at the value chain and the supply chain as a set ofphysical flows and information flows, the value chain is only within the enterprise

or, more broadly, includes suppliers, manufacturer, distributors, retailers, butexclude customers In contrast, the supply chain focuses on both internal andexternal factors, in other words, customers is a prerequisite factor in supply chain.Lastly, whereas the value chain aims to generate profits and increase the benefits ofthe entire system, the supply chain strives for point toward minimizing costs (such

as cost of transportation, distribution, inventory, warehouse, and others)

1.2 Structure of a supply chain

1.2.1 Main factors in the supply chain structure

In order to take advantages from supply chain and supply chain management,each corporation has to consider for factors, which capture a supply chain, arefacilities, inventory, transportation and information In each factor, manager has tobalance between efficiency and responsibility Impacts of all these factors will creat

a balance of supply chain and determine whether that supply chain strategy issatisfied with competitive strategy of corporation

Picture 1.1: Structure of supply chain

(Source: https://slideplayer.com/slide/7916213/) 1.2.1.1 Raw materials

Raw materials are one of important and basic factors in a supply chain It issaid that raw materials and suppliers selections are the very first step to begin asupply chain Manufacturers shall purchase and store those materials to serve theirproduction process There are some characteristics of raw materials in general theraw materials shall change in appearance, not remain their original state whenputting into production The materials are directly involved in complete productionprocess The entire value of input materials is transferred directly into the finishedproducts which are basis for estimating the cost and price Decisions related to rawmaterials are often their quality, quantity and specifications

1.2.1.2 Manufacturing process

The manufacturing process is the most essential step in a supply chain This is

a complete process in which the result is finished products to be sold in market Theproduction process starts from delivery and distribution of raw materials to factories

to manufaction of many different products There are various factors involved inthis process such as main materials, natural resources, machinery, equipment,scientìic and technological applications All these factors form an automatical

system in production and employees or worker just need to start, monitor andcontrol whole production process through technology.

1.2.1.3 Facilities

Facilities are supply chain locations where products are stored, assembled ormanufactured Firms must decide whether production facilities will be flexible,dedicated, or a combination of the two Two common types of facilities areproduction sites and storage sites No matter the funtions of facilities in a supplychain are, the decisions related to locations, productivity, flexibility of facilities stillplay an important role in quality of supply chain Decisions related to facilitiesinclude those about warehouse network, and distribution network

1.2.1.4 Inventory

Inventory encompasses all raw materials, work in process, and finished goodswithin a supply chain The inventory belonging to a firm is reported under assets.Changing inventory policies can dramatically alter the supply chain’s efficiency andresponsiveness Inventory affects the assets held, the costs incurred, andresponsiveness provided in the supply chain High levels of inventory in an apparelsupply chain improve responsiveness but also leave the supply chain vulnerable tothe need for markdowns, lowering profit margins A higher level of inventory alsofacilitates a reduction in production and transportation costs because of improvedeconomies of scale in both functions

1.2.1.5 Transportation

Transportation moves products among different stages in a supply chain.Flexible transport with a variety of both means of transport and transported productscontribute to increase responsibility, but decrease efficiency of this supply chain.Faster transportation is more expensive but allows a supply chain to be moreresponsive As a result, the supply chain may carry lower inventories and havefewer facilities The appropriate choice of transportation allows a firm to adjust thelocation of its facilities and inventory to find the right balance betweenresponsiveness and efficiency Means of transport selected by corporations willaffect on facilities and inventory Decisions of transportation include decisionsabout means of transport, transportation network, schedule and outsourcing

1.2.1.6 Information

Information includes prediction and analysis of data related to facilities,inventory, transportation and customers Information is considered as a key factor in

a supply chain because it not only have great impacts on entire factors but also take

a chance to design a supply chain, which has both responsibility and efficiency Forexample, a pharmaceutical company based on customer demands produce and storedrugs that meet customer requirements This obviously enhances responsibility of asupply chain Morever, information of these demands helps corporations to forecastcorrect quantity manufactured to minimine cost and improve efficiency of thatsupply chain Decisions related to information are ones of information system,sharing information, overall plan and forecast, valuation and budget management,assistive technology

1.2.2 Components of supply chain network

1.2.2.1 Procurement of raw materials

Procurement of raw materials is a process in which materials and services forthe maintenance and development of the company’s productions are purchased fromreputable suppliers and are provided under agreed terms and conditions Its purpose

is that it has to create the maximum value for a company by negotiating time andcost with the suppliers

a) Determination of raw materials demand

Determination of raw materials demand is the very first and fundamental stepfor the manufacturers Depending on their each purpose of production and generalobjectives, decisions of purchasing raw materials are various and not always justsimple In order to keep going to next steps in the procurement process, themanufacturers need to identify clearly which and how many raw materials theywant to purchase

b) Selecting suppliers

After determining of raw materials demand, the enterprises need to researchand select their suppliers With raw materials with frequent demand, manufacturersshall research and evaluate more to select the best source of supply; with new rawmaterials, they need to consider carefully choosing the potential suppliers There arefour main steps to select a final supplier

The first step is cultivating suppliers’ information and data Manufacturers canreview archived records of suppliers (if any); research information on internet,newspapers, magazines, and information centers; conduct some surveys, interviewsuppliers, other users of materials or consult experts Based on cultivatedinformation and data, manufacturers shall handle, analyze, and evaluate advantagesand disadvantages of each supplier; then they compare with the standard set andmake a list of qualified suppliers The process of evaluating and re-evaluating shall

be repeated one or more times until manufacturers select their official suppliers Thethird step is negotiating and signing contracts Manufacturers must carry outcarefully this step because it is directly related to manufacturer’s input cost Aftersigning the supply chain contract, manufacturers and their suppliers need to payattention to contract implementation process The manufacturers always monitorand re-evaluate their suppliers to decide whether their contracts shall be long-term

or just short-term

c) Making and implementing orders

After choose the suppliers, the manufacturers shall make orders or supplycontracts A signed order has to include the information such as buyer’s name andaddress, order number, time and date for making order, supplier’s name and address,raw materials’ names, quality, specifications and quantity, and time and place ofdelivery When an order is accepted, manufacturers and their suppliers shall signcontracts with agreed terms and conditions related to contract objects (types ofproducts, quality, volume, agreed price, currency); quality, specifications ortechnical requirements including price, guarantee, delivery conditions, paymentmethods, and other agreement After signing contracts, two parties shall carry out aseries of corresponding tasks and complete their responsibilities in contracts.Suppliers need to deliver the agreed raw materials to manufacturers at the mostconditions in which delivered products have to meet all requirements of contracts.Manufacturers shall receive the goods, check supplier’s notes, supervise unloadingfrom transport vehicles, inspect the delivered goods and sign the necessarydocuments, and re-evaluate the whole process of supplying products

d) Warehousing, storing to serve for production process

The last step of process of purchasing raw materials is warehousing, storing toserve for production process Based on nature of each type of materiala and itsstorage requirements, raw materials need to stored under suitable conditions Itaffects on enterprise’s decisions of inventory network, warehouses systems as well

as transportation network to answer the questions when, where and how rawmaterials are transfer into final products through production process

1.2.2.2 Manufacturing

Production process is the most important activity in the whole supply chain it

is result of strategy planning and suppliers seleting The activities in the productionprocess shall create main value and benefit of a beverages enterprise Productioninvolves supply chain capacity to produce and store products Important means inproduction are factories and warehouses Decisions related to manufacturing depend

on market’s demand with time and volume of products so that manufacturers canbalance their responsiveness and efficiency If the factories and warehouses areestablished with large capacity, manufacturers have the flexibility and quickresponse to the mass of products However, the large capacity of factories andwarehouses can create more organization and operation costs for manufacturers.Those factories are built according to the following two methods to facilitateproduction process The first method is focusing on manufacturing; which meansthat one factory specializes to product only one product line so that it can carry outmany different actitivies from manufacturing components to linking thosecomponents to finished product The second method is focusing on function, whichmeans that one factory carry out one link or components in production process Thesecond method can be applied to produce various product lines at the same time.Production activity includes three main activities that are product designing,production process planning and management of production facilities.Requirements of production designing are related to satisfactory about characteristic

of products in comparison with customers’ demand Manufacturers need to plan aproduction process, figure out the most reasonable production time and place tosatisfy timely customers’ demand Management and operation of productionfacilities are the most important step in production process to creat the finalproducts

1.2.2.3 Facilities network

Facilities in a supply chain include system of warehouses and system ofdistribution The decision related to locations of warehouses, factories is one of thevery first decisions and effect on decisions of entire factors

a) Distribution network

i) Distribution in a supply chain

Distribution is related to activities, which are carried out to deliver and storeproducts from suppliers to customers in a supply chain Distribution occurs betweencouple of stages: raw materials and components from suppliers to manufacturers aswell as final products from factories to final customers Distribution is an importantelement to impact on the ability of rising benefits of a corporation because of directinfluence on supply chain cost and customers’ experience

A suitable selection of distribution network leads to customer demands, whichare satisfied at as lowest as possible cost The question is how we can measure orevaluate whether a selection is efficient and effective or not; which distributionmodel is the most suitable for corporation and customers There often are twocriteria to evaluate a network: customer demands that are met and necessary cost ofmeeting customer demands We should focus on measurement which are influenced

by structure of distribution network such as response time, product variety, productavailability, customer experience, order visibility, and returnability

The change in a distribution network can make effects on transportation costs,facilities and exploitaion costs, information costs An increase of facilities quantityshall lead to an increase of inventory and inventory costs Input transport costsconsist occurred costs to transport raw materials to one place Output transport costsare one to deliver products from that place When amount of facilities increases,logistics costs will increase after drop at a certain level As a result, each companyneeds to determine the minimum amount of facilities to keep the total logistics costs

at minimum level

ii) Selection of distribution network

We will consider a distribution network between manufacturers and finalcustomers It takes time for manufactures to choose a suitable distribution networkthat help them balance distribution cost and distribution time There are two

important decisions while designing a distribution network: Whether products will

be directly delivered to customer’s location or will be received from apredetermined location and whether products are distributed throught intermediates.Based on selection for two above decisions, there are six models of distributionnetworks practiced to deliver finals products from factories to consumers:manufacturer storage with direct shipping, manufacturer storage with directshipping and in-transmit merge, distributor storage with carrier delivery, distributorstorage with las mile delivery, manufacturer or distributor storage with consumerPickup, and Retailer storage with consumer Pickup

First model is manufacturer storage with direct shipping, or called shipping In this model, products are delivered directly from manufacturer toconsumers, skipping retailer stage If retailers occur, they are independent from themanufacturers A producer will gather customer demands throught their retailers

drop-Picture 1.2: Model of manufacturer storage with direct shipping

(Source: Sunil Chopra, Peter Meindl, Supply chain management,

Pearson/Prentice Hall, 2007)

The biggest advantage of drop-shipping model is ability to aggregate demandand centralize inventory at the factory, which benefits for high-value and lowdemand products with unpredictable demand Another advantage is that this modelgives manufacturer a chance to postpone the customization until the order is placed,

which helps to reduce amount of inventory However, response time tends toprolong when using this model Time of delivery is not identical betweenmanufacturers in an order whose products from different sources Moreover, it isdifficult to achieve order visibility that are collected by retailers but delivered by themanufacturers Storage networks often face obstacles of returnability because manymanufacturers relate each order; this service will waste cost and time of bothmanufacturers and customers.

The second model is manufacturer storage with direct shipping and in-transitmerge, which combines small parts of an order from different sources to deliver tocustomers once per order The manufacturers still make decisions with inventory

Picture 1.3: Model of manufacturer storage with direct shipping, in-transit

is stored at warehouses of distributors or retailers In comparison with model ofmanufacturer storage, amount of inventory of distributors or retailers is required to

be higher because the distributor or retailer gathers the demand for uncertainty at alower level than manufacturer

Production flow Information flow

Production flow Information flow

Picture 1.4: Distributor storage with carrier delivery

(Source: Sunil Chopra, Peter Meindl, Supply chain management,

Picture 1.5: Distributor storage with last-mile delivery

(Source: Sunil Chopra, Peter Meindl, Supply chain management,

Pearson/Prentice Hall, 2007)

Production flow Information flow Customer flow

The biggest advantage of last mile deliver is the returnability of goods andimprovement of customer experience Trucks deliver the goods are also used toreceive goods not satisfied customers However, transport cost of last mile deliver isthe highest in 6 models because of not taking advantage of economic of scale; andfacilities cost are often high in this model with a large number of facilities required.From the aspect of inventory, this distribution network will be suitable for theproducts consumed quite quickly

Manufacturer or distributor storage with customer pickup is fifth model inwhich inventory is stored at warehouse of manufacturers or distributors; customerwill order online or by internet and then pick their goods up at specified places.Products are delivered from warehouse to required place; some items are stocked at

a delivery location while others are shipped from a central location, often called aCross-dock The facilities costs will be reduced if taking advantage of existingfacilities The transparency of orders is an extremely important factor becausecustomers have to be informed when their order is availble

Picture 1.6: model of manufacturer or distributor storage with customer pickup

(Source: Sunil Chopra, Peter Meindl, Supply chain management,

Pearson/Prentice Hall, 2007)

The main advantage of a network with specified places for customer to receivetheir orders is reducing delivery cost, the expansion of the goods supplied as well asservice online The drawback of this network is that operation costs at delivery

places increase Cross-docking network will be effective when available locationssuch as grocery stores are used as delivery points because of enhancing theeconomy from the existing infrastructure.

Finally, retailer storage with consumer pickup is the model in which inventory

is stocked by retailers Customers come to retail stores or order online then picktheir products at a store Storage at retail stores leads to an increase of inventorycost due to lack of order centralization, this method will be suitable for productswith high level of consumption Transport costs are much lower than other modelsbecause of taking advantage of shipping methods On the other hand, facilities costsshall be high, as many local facilities need to be built to meet model’s requirement

It is clear that this model helps to reduce delivery cost and increase the ability toexecute orders quickly; however, inventory and infrastructure costs are much higherthan other models Therefore, this network shall be the most suitable for items withfast consumption or quickly delivered items

b) Warehouse system

i) Overview of inventory

Inventory plays an important role in a supply chain and supply chainmanagement because it influences both costs and services Because of fluatuation ofcustomer demands and requirement of a period to manufacture and deliver products,

a certain quantity of inventory is required at some links in supply chain to ensure toprovide products and services for final customers in time Inventory in a supplychain helps firms and organizations to enhance customer service and total incomes,

it is required a high amount of cost as a reward

Stock-in-trade is shown throught a general number, which is quantity of rawmaterials, semi-finished products and final products An accountant can use thismethod to make a conclusion about inventory status However, it doesnot answerthree main question in supply chain activitie: location (where the corporation shouldstock its inventory), extent (quantity of stocked inventory), and period (how longdecisions of location and exten need to be maintained before being changed)

Firms and organizations can maintain a certain amount of inventory to exploiteconomic of scale in manufaction and maximine productivity force, especially incase of seasonal fluctuation in demand in order to speculate in the future or to deal

with uncertainty of demand and supply Based on listed incentives above, managerscan answer three questions related to location, extent and period.

ii) Inventory models

The first inventory model is economic order quantity (EOQ) which is source

of all inventory models This model is set up based on some assumptions such asdemands and order time to inform in advance and not change, the output of an order

is carried out in a shipment, no deduction according to output and no shortage ofinventory If fixed cost for each import is important, the EOQ model becomes useful

to solve the balance between fixed costs and inventory

The second one is production order quantity (POQ) Production order quantity

is applied in case of both importing and exporting products or both manufacturingand consuming products Its assumptions are almost similar with economic orderquantity model The difference between two models is that despite carrying out thequantity of an order in only one shipment as EOQ, in POQ model, it is carried out

in many shipments and completed after period

Inventory model with deduction according to quantity is the third model ininventory system design It also has assumptions that are similar EOQ, butdeduction according to quantity Therefore, corporations need to determine andadjust the optimal order volume with deductive levels corresponding to the lowesttotal inventory costs

The final model is probability model with constant supply time, or inventorymodel with safe reserve Based on assumptions in EOQ model, this model has somedifferences such as demands are certainly determined in advance and probability ofshortage of inventory quantity When quantity of storage increases, inventory costwill also increase and damage cost due to shortage reduce Therefore, firms andorganizations need to handle with quantity of safe reserve in order to minimize totalcosts (inventory cost and damage cost due to product shortage)

1.2.2.4 Transportation network

Transportation is related to products’ movement from one place to anotherplace, in other words, transportation creates the movement of products from thebeginning point of a supply chain to final customers Transportation plays an

important position in each supply chain because products are rarely produced andconsumed at the same places In term of international trading, transportation is animportant bridge between different stages in global supply chain.

Every success of a supply chain is associated with applying accurate transportfactors For example, we consider case study of Wal mart transportation system.Wal mart has an effectively used the transportation network to reduce its total costs

In order to achieve a high level of product availability at a reasonable price, Walmart maintains a low inventory, just enough for the demand Wal mart distributes todifferent retail stores in a mean of transport which departs from a supplier to reducecost of transportation of frequent import Wal mart uses cross-docking distributionmodel, in which products are transferred between means of transport (trucks) so thatone truck can deliver many kinds of products from many different suppliers toretaiers and customers

a)Direct shipping network

In this model, each retail chain designs its own transportation network so thatall the shipments are directly transfered from suppliers to outlet stores The route ofeach shipment is fixed and clear, and supply chain managers just decide shippingquantity and used means of transport The biggest advantage of direct shippingnetwork is elimination of intermediate warehouses and simplity in coordination andcooporation Decisions are made connect to each shippment, not to others.Nevertheless, delivery charges will be high as each supplier has to separatelydeliver their products, which doesnot take full advantage of economic of scale.Moreover, if suppliers ask transport companies for either full container load or lessthan container load, extra charge is also high

b) Direct shipping with pre-order consolidation

A scheduled consolidation route is the route by which a truck delivers from asupplier to multiple retailers or from multiple suppliers to a single retailer, whichmeans that a supplier will deliver directly products to retailers on a truck or thattruck will obtain products to deliver to a retailer When using this model, supplychain managers have to decide route and schedule of each shipment Scheduledconsolidation route will reduce transportation cost through consolidating products

from many stores on one truck, and salvage the truck’s load, if shipments are carriedout based on regular terms and suppliers and retailers are both located in ageographic area

c) Delivery through distribution centers

In this model, retail stores network will devide its stores into groups based ondifferent geographic areas, in each of them, a distribution center is designed.Suppliers will deliver products to distribution centers from where necessaryshipments are shipped to each retail outlet Distribution centers play roles as thirdparties or as intermediates between supplier and retailer or both.This model allowssupply chain to take advantage of economic of scale

If quantity of goods transferred to distribution centers is large, they will stockproducts and provide to stores for small quantity If that quantity is sufficient, thedistribution centers will cross-dock the products by deviding into smaller shipmentsand loading them onto a truck and delivering to retail stores The main advantage ofcross-docking is low amount of inventory and acceleration of product lines insupply chain By using cross-docking model, corporations economize handling costbecause of no status of inventory shortage or redundance However, the success ofcross-docking model mostly depends on level of cooperation and synchronizationbetween amount of exported and imported goods This model is suitable forproducts that are in great demand and easy to predict

d)Delivery through distribution center with scheduled consolidation route

Scheduled consolidation route is usually used from a distribution center ifquantity of products need to be delivered to retailers is small These consolidationroutes will helps to significantly reduce the output transportation cost withconsolidating small orders to bigger ones To apply this model, cooperation and planand schedule design of consolidation routes are necessary for each company

All decisions related to transport factors in the supply chain network need to

be taken into account when considering their impacts on inventory costs as well aslevel of responsibility provided to customers The selection of means of transporteffects on inventory quantity in a supply chain, when a corporation chooses a low-cost mean of transport, response time will prolong and lead to increase of amount of

reverse inventory to ensure the supply chain’s responsibility In constrast, if mean oftransport which allows delivering a large quantity to reduce amount of inventory,transportation costs will be higher.

Moreover, responsibility with customers is considerable element in balancerelationship between parties in a transportation network If a corporation has highresponsibility and delivers on the order date, it will be small shipments with highcosts If that corporation consolidates orders in a period, it can exploit economic ofscale and reduce transportation cost, but less responsibility with customers

For different customers and products, different networks and means oftransport are applied to balance costs in supply chain and maximine profits Almostcompanies provide a diverse portfolio of products and serve a varity of marketsegments, it is essential to establish a suitable transportation network There aresome bases to choose a suitable transportation network as follows:

e)Changing transport network based on quantity of and distance to customers

Each firm and organization needs to consider to level of customer distributionand distance from warehouse to customers, through which they can decide optimaltransportation network for every certain case For example, when the companyserves a large amount of customers located close to the distribution center, owning afleet of trucks used to transport scheduled routes from center to customers is thebest choice since this model facilitates good utilization of vehicles

f) Changing transportation network based on customer size

Companies need to pay attention to the size of their customers and theirlocation because the big customer will be better served by using full-load carrier,while the smaller customer requires the use of less-than-load carrier or scheduledconsolidation route Transportation cost is the same for both large and smalleramount of customer, therefore, delivery for a large amount of customer onto a truckwill sauvage transportation cost Transportation cost per customer for small amount

of customer will be higher in comparison with larger amount of customer Oneoption is that the company will charge higher shipping costs for small amount ofcustomers The company adjusts the scheduled routes so that they can deliver tolarge amount of customers with greater frequency than small one

g)Changing transportation network based on demand and value of products

Level of inventory concentration and applied mean of transport in supplychain often change based on value and demand of products Periodical inventory forhigh-value and high-demand products is dispersed to reduce transportation costsbecause it is less costly to import goods With low-demand and low-value products,corporations should only concentrate on safe inventory, which can be gathered toensure reduction of inventory and high-speed transport methods are used to meetcustomer needs Low-cost means of transport are used for both two cases to importcycle inventory and fast-moving vehicles for safe inventory entry With products arelow demand and high demand, enterprises foces on all inventory, if any use fast-speed means odd transport for delivery; whereas, periodical inventory is dispersedand applied low-cost means of transport to transport goods.

1.2.2.5 Application of information technology in supply chain

Three into four factors in supply chain structure, which are facilities,transportation, inventory, are directly related to physical flow Although information

is not physical flow, it is an important factor to link other factor into smoothcoordination to create a unified entity

Information has a great impact on result of supply chain as it providesfoundation for process of completing transactions and making decisions ofmanagers Without information, managers can not know about customer demends,required inventor, time and place to produce and distribute With smoothinformation flow, supply chain is clear for managers and they will take a chance toget high efficiency of others factors Information is a great tool for managers tocatch up with all sectors involved and plan a strategy covering all issues of thesupply chain Information technology including software and hardware throughoutthe supply chain is responsible for synthesizing, analyzing information and data thatare timely and accurate about corporation’s functions and all organizations

Corporation software influences more and more profondly on efficiency ofinformation technology, is developed for external and internal process ofcorporation Within a supply chain, different capabilitites developed by informationtechnology all come from the platform provided by corporation software.Technology used in supply chain supports macro consistent processes A great

information technology system not only allows corporations to collect informationand data but also analyzes decisions to maximine profit of whole supply chain Inorder to understand information technology structure in a supply chain, we willconsider the macro processes, including customer relationship management (CRM),internal supply chain management (ISCM) and supplier relationship manager(SRM) Moreover, we should also know that there is a fourth software frameworkthat provides the foundation for other development processes as the transactionmanagement facility (TMF) which includes enterprise resource planning system(ERP system), infrastructure software and unified software and helps three abovemarco processes to coordinate together.

a)Customer relationship management (CRM)

Macro process of customer relationship management includes downstreamprocesses that take place between a corporation and its customers The objective ofthis process is to gather customer needs and facilitate delivery and tracking oforders There are some key processes in customer relationship manager Firstly,marketing process involves decisions about who the target customers are how tocatch up with them and what products are provided, how to value them and how tomanage marketing campaign related target customers Successful software vendors

in the field of marketing will provide analysis to improve the effectiveness ofpricing decisions, profitable products and potential customers Secondly, salesprocess focuses on selling directly to customers, which includes providing salesstaff, information of customer and making real sales Software vendors will targetthe automatic sales team, configuration an individualization to improve efficiency.Thirdly, the order management process is particularly important to customers totrack order fulfillment status and to corporations to plan and execute orders Thisprocess is closely linked to demand of customers and supply of suppliers Ordermanagement software is implemented by systems such as the enterprise resourceplanning system Finally, service center is the initial point of connection between acorporation and its customers, where corporation suggests products, solves arisingproblems and provides order status information for customers to place their orders.Successful software vendos help upgrade service center operations by reducing the