Improving internal material supply chain of nghi son cement corporation

External factors...16 CHAPTER 2: THE ANALYSIS OF INTERNAL MATERIAL SUPPLY CHAIN AT NGHI SON CEMENT CORPORATION...18 2.1.. Overview of Nghi Son Cement Corporation internal material supply

NATIONAL ECONOMICS UNIVERSITY

Advanced Educational Program

Class : International business K54

Lecturer : Nguyễn Anh Minh

Ha Noi - 2016

STATUTORY DECLARATION

I herewith formally declare that I myself have written the submitted Bachelor’sThesis independently I did not use any outside support except for the quotedliterature and other sources mentioned at the end of this paper

Hanoi, / / 2016

Signature

Tablet of Content STATUTORY DECLARATION

TABLET OF CONTENT

LIST OF FIGURES

INTRODUCTION 1

CHAPTER 1: THE THEORETICAL FRAMEWORK OF SUPPLY CHAIN AND INTERNAL MATERIAL SUPPLY CHAIN 4

1.1 Overview of supply chain 4

1.1.1 Definition of supply chain 4

1.1.2 Definition of internal material supply chain 6

1.1.3 Role of internal material supply chain 8

1.1.4 Element of internal material supply chain 9

1.1.4.1 Exploit material 9

1.1.4.2 Transport material 9

1.1.4.3 Store material 9

1.1.4.4 Locate material 10

1.2 Operation of the internal material supply chain of a firm 10

1.2.1 Choosing internal source of supplies 10

1.2.2 Material classification 11

1.2.3 Warehouse management 12

1.2.4 Transport material 14

1.2.5 Build up plan for supply 14

1.2.6 Quality management 15

1.3 Factors affect internal supply chain of business 16

1.3.1 Internal factors 16

1.3.2 External factors 16

CHAPTER 2: THE ANALYSIS OF INTERNAL MATERIAL SUPPLY CHAIN AT NGHI SON CEMENT CORPORATION 18

2.1 Company introduction 18

2.1.1 General information of NSCC 18

2.1.2 History of establishment and development 18

2.1.3 Organization structure 19

2.1.4 Function of Divisions 19

2.2 Situation of internal material supply chain 22

2.2.1 Overview of Nghi Son Cement Corporation internal material supply chain 22

2.2.2 Operation of the internal material supply chain at Nghi Son Cement Corporation during 2011 – 2015 22

2.2.2.1 Choosing source of material 22

2.2.2.2 Material classification 23

2.2.2.3 Warehouse system 24

2.2.2.4 Transportation of material: 25

2.2.2.5 Build up supply goal 26

2.2.2.6 Quality management 29

2.3 Evaluation 30

2.3.1 Actual situation of Nghi Son Cement Corporation material supply chain 30 2.3.2 Strength of Nghi Son Cement Corporation’s internal material supply chain

32 2.3.3 Limitation of Nghi Son Cement Corporation’s internal material supply chain

33 2.3.4 Reasons for improving Nghi Son Cement Corporation internal material supply chain 34

CHAPTER 3 – SOLUTION FOR IMPROVING THE INTERNAL MATERIAL SUPPLY CHAIN AT NGHI SON CEMENT CORPORATION 36

3.1 Development orientation of Nghi Son Cement Corporation 36

3.2 Solution for improving the internal material supply chain of Nghi Son Cement Corporation 37

3.2.1 Ensure material flow 37

3.2.2 Improve the process of product management 37

3.2.3 Upgrading warehouses and transport system 38

3.3 Recommendation for the authority 39

CONCLUSION 40 REFFERENCE

List of figures

Figure 1.1: Supply chain of Lee & Billington 4

Figure 1.2: Supply chain divided into two main channels 7

Figure 2.1: Organization structure of Nghi Son Cement Corporation 19

Figure 2.2: Warehouse system of Nghi Son Cement Corporation 25

1 Background and statement of problem

In the beginning of the 21st century, along with the tendency of globalization,many companies have gained chances to approach the international markets; on theother hand, they have to face the threat of losing their pre-owned market share inVietnam One of the main factors that decide the fate of these companies is the cost

of the products, low cost may help firm to draw the attention of consumer to theirproducts and to maintain those attention, the quality of products must worth theamount that consumer paid out In order to make the product with best cost compare

to price, managers have to improve the internal material supply chain of the firm,which is the first step in determining the price of the good they intended to deliver

to their consumers

The supply chain of material is the process begins from the stage when rawmaterials leave the warehouse of the supplier and end up in the storage of themanufacturer ready for the main production procedure which converts them in tofinished good Since this is an important phase, many researches have beenconducted to increase the performance of internal material supply chain but this stillhave many drawbacks that have bad effects on this process The quality of inputmaterial has been improved but not even, this is cause by the mistake in qualitycontrol Another problem that is worth consideration is the timeliness in deliver thegood to consumer which require a stable inflow of material In reality, a companyhas to face many problems beside two typical example mentioned above

Nghi Son Cement Corporation is a joint venture between Vietnam CementIndustry Corporation (VICEM) and two Japanese multinational corporations:Taiheiyo Cement (TCC) and Mitsubishi Materials Corporation, the companyprovides building material to the market With 20 years of operating, the company

is familiar with Vietnam market and they have built up nearly complete supplychain Still, I realize there are still drawbacks in internal material supply chain such

as inflexibility in supply or non-automatic operating system Therefore, in order to

compete with current and potential rival in the market and for a long-term plan toextend the market to other country, Nghi Son Cement Corporation should improve

its supply chain system It the reason for me to choose the topic: “Improving the internal material supply chain of Nghi Son Cement Corporation”

2 Purpose and requirements for the thesis

The purpose for this thesis is to state out the limitations that remain in theinternal material supply chain of Nghi Son Cement Corporation and furthermore,analyze the company current condition to find out hidden potential that can beused to improve the performance of internal material supply chain in theforeseeable future

There are 3 requirements for the thesis:

 Develop theoretic framework about internal material supply chain and itsrole in the business process of the company

 Analyze the efficiency of internal material supply chain in Nghi Son CementCorporation

 Propose solutions to improve the performance of internal material supplychain in Nghi Son Cement Corporation in the future

3 Object and scope of the thesis

3.1 Object of the thesis

The thesis focuses on the internal material supply chain of Nghi Son CementCorporation and solutions to improve it in the future

3.2. Scope of the thesis

The thesis uses the data from the accounting and logistic department of NghiSon Cement Corporation from 2011 to 2015 The solutions are intended to takeeffects in the 5-year period that ends in 2020

CHAPTER 1: THE THEORETICAL FRAMEWORK OF SUPPLY CHAIN AND INTERNAL MATERIAL SUPPLY CHAIN1.1 Overview of supply chain

1.1.1 Definition of supply chain

Supply chain refers to all networks of relevant organizations, through theforward and backward relationship, in different processes and activities create value

in form of products and services that are delivered final consumers There are manydifferent definition of the supply chain

According to Lee & Billington (1995), the supply chain is a network offacilities for purchasing raw materials, transform them into intermediate products,then to the final product and that product will be delivered to customer by thedistribution system

By this concept, the supply chain is shown in the following diagram:

Figure 1.1: Supply chain of Lee & Billington

In addition, there are many more different conceptions about the supply chain:Supply chain is the alignment of companies to bring products and services tomarket (Michael hugos)

Supply chain includes all direct or in direct related activities performed tosatisfy customer needs Supply chain includes not only manufacturers and suppliers,but also have the transportation, warehouse storage systems, retailers and customers(Chopra & Meindl)

Supply chain is a network of facilities and distribution options how to performthe function of purchasing raw materials, convert them into intermediate productsand final products, distribution of the final product to customers (Ganeshan &Harrison)

Supply chain is the stage where product lines, services, information transferfrom the first supplier to the end customer and vice versa (David Sharpe)

According to Christopher (1998), supply chain is a network of organizationsinvolved directly and indirectly to various processes and activities in order todeliver the value of products and services to end customers

In “The practice of supply chain management: where theory and applicationconverge”, author Terry P Harrison defined as follow: “Supply chain is the creation

of value chain through the connections from the company's suppliers to thecompany's customers Base operations of the supply chain represents: Receivinginput from suppliers → create value → distribute products and services tocustomers”

Supply chain includes all businesses involved, either directly or indirectly tomeeting customer needs (curriculum administrator supply chain

According to the thesis’s approach, the supply chain is defined as all activitiesfrom the stage of raw material extraction, processing until the finished goodproduced by that raw materials are delivered to the hands of consumers These

activities are divided into two main channels: supplier network (purchasing) anddistribution network as be shown in figure 1.2.

In conclusion, the supply chain is a complex system, but tightly linkedbetween the members in the process of creating and distributing finished products tomeet the needs of customers Therefore, it becomes the key to differentiate theproducts in order to increase competitiveness

1.1.2 Definition of internal material supply chain

Internal material supply belong to the first stage of supply chain process –Supply and logistic.Internal material supply chain only considers internal businessenvironment without considering its extension This oppose to external mateialsupply chain, which is consist of a group of independent entities operating as thebusiness’s supplier

Early definition of the material supply chain limited to the operation of theenterprise, mainly referring to manufacturing enterprises that receive goods fromexternal procurement of raw materials and parts after the production, the goodreceived then store and prepare for processing With the development of economicscondition, many firms have started to build up strategy for having their own source

of supply These firms may have different approaches to accomplish this: somecompanies invest heavily to build up their own source of supply while others justuse backward integration strategy This creates a situation that many firm do nothave buy goods from external supplier anymore, give out the classification ofinternal and external material supply chain

In this thesis, the concept of internal material supply chain is in the productionand product flow, the process of raw material suppliers, manufacturers, storage,transportation, composed of networks of supply and demand Internal materialsupply chain concept refer to single entity, where the stages from raw materialextraction, transport, storing and prepare for processing are perform internallybetween departments of the company

Supply and logistic

Directsupplier Distributor Retailer

user

End-Figure 1.2: Supply chain divided into two main channels

Manufacturer

1.1.3 Role of internal material supply chain

The role of material supply chain can be described as the opposite of sales

in the sense that sales is about selling the products in the marketplace, whilematerial supply is all about providing raw materials need for company operationand adding value via the production process then sell the final product to gainmaximized profit

In recent years, the role of internal material supply chain has changedconsiderably It used to be viewed as a part of procurement activities, a clerical job

of buying the material requested by the customers but now it is recognize as anindependent function in the business, which play a part in determining the profitwhen selling the final products This change caused by many reason Some arerelated to changing pattern of supply chain – with more integration, companiesbecome more active in managing material Other changes are response tomovements in the business environment – with increasing in competition, varyingprice for raw materials, increasing technology, economics uncertainty, changingpower in supply chains, deregulation and so on, which require the company tocombine between internal supply chain – self-providing and managing material –and external supply chain – outsourcing in order to maintain the business withlowest cost possible All this process must begin from internal supply chain, whichmeasure and evaluate the demand for material of the entity

For clearer understanding about the role of internal material supply chain in abusiness, common activities of this function are as follows:

 Extract raw material from natural source

 Measure and evaluate the demand for material of the entity for upcomingperiod

 Transport the raw material from the source to warehouses and fromwarehouses to production plan

 Store and preserve goods to ensure goods are keep at best condition

 Perform quality control on the goods regularly

 Cooperate with accounting department to find out the best solution to provideraw material for the company (increase internal supply or increaseoutsourcing).

1.1.4 Element of internal material supply chain

There are four main elements in an internal material supply chain Theelements are listed as below:

1.1.4.2 Transport material

Transport is the stage where raw materials are delivered between nodes insupply chain, from material mine to warehouse and from warehouse to productionplan In this stage, the balance between the ability to meet the need and workefficiency is express in the choice of transportation method

1.1.4.3 Store material

Storing in internal material supply chain has two main functions: preservingand evaluating

 Preserving: This is the stage where goods are store in warehouse andmaintain at best condition in order to support for the next stage – production.

If goods are keep at ideal condition, not only the output products will havegood quality but also the useful life of company’s machinery system will beextended

 Evaluating: Besides preserving the good, storing material also play animportant role in evaluating the efficiency of business operation If theinventory is always maintain at low level when company is operating atnormal capacity, it means that the company’s business is running well,product are consumed immediately after delivering to the market andcompany should consider to expand its activity scope for more profit

1.1.4.4 Locate material

Locate material means to find the source of material, which source has the bestquality material and large capacity that can provide material for the company inlong-term This is one of the key factors that determine the success of the company

If locate is performed properly, supply chain activities and business operation willcontinue without any disruption

1.1.4.5 Manage information on material

There are two big questions of what information should be collected and whatinformation should be share If company can answer this question, it will contributegreatly to the decision making process of the managers To have the correctanswers, the company must aware of the market they are serving as well as who arethe target customers of the company The effectiveness in capturing market signalwill help the company to set up the appropriate goal for internal material supplychain as well as other department

1.2 Operation of the internal material supply chain of a firm

1.2.1 Choosing internal source of supplies

Choosing the right source of supplies will affect greatly on company’sbusiness result A good supplies source will provide good with high quality andaccurate specification in a timely manner As a result, the company can operatewithout disruptions due to effective supply chain In contrary, a source that is notqualified for above requirement will let the firm to expose to business risk Beloware some criteria for choosing internal source of supply:

 The capacity of the source

 The quality of good provide by source

 The cost to build up supply system that integrates with the source

 Main material: These are materials that play the key role in forming the finalproduct Main material in manufacturing industry are usually divided intofour main groups:

o Metals: include Ferrous metals and alloys (irons, carbon steels, alloysteels, stainless steels, tool and die steels) and Nonferrous metals andalloys (aluminum, copper, magnesium, nickel, titanium, preciousmetals, refractory metals, super alloys)

o Polymeric: Include Thermoplastics plastics, Thermoset plastics andElastomers

o Ceramics: include Glasses, Glass ceramics, Graphite and Diamond

o Composites: include Reinforced plastics, Metal-matrix composites,Ceramic-matrix composites and Concrete

 Supporting material (secondary material): These are material that add in withthe main material in the production process and contribute as catalyst,reinforce adhesive or packaging Supporting material in manufacturing firmscan be divided in two group:

o Directly participate in forming final product: these kind of supportingmaterial usually chemicals and additives which support for chemicalreaction in production process to create the product

o Not directly participate in forming final product: these materials do nothave any role in creating the product but they still add value to theproduct when selling to the market Typical example of this kind ofmaterial is package that use to contain the product

 Fuel and other energy source: These materials are very important since theyare used to operate all the machinery of the company from extractionprocess, transporting, storing to the production line In a normalmanufacturing firm, common energy resource may contain: fuel, gas, oil andelectric

1.2.3 Warehouse management

Using warehouse management systems, warehouse managers perform tasks indaily planning, organizing, staffing, directing, and controlling the utilization ofavailable resources, to move and store materials in order to Improve inventoryvisibility, reduce inventory levels, and control inventory operations General task ofwarehouse management are listed as follow:

Planning - finalizing the daily plan for receiving new raw material, selectingthe orders to be processed in the day or shift, (this may also be done by the business

system), and calculating an estimate of the labor and vehicles required to pick andship the orders to ensure the staffing is appropriate, and carriers are notified in time

to meet the daily requirements

Organizing - sequencing the orders to be picked Organizing orders for pickingcan be accomplished in many ways, meeting the needs of the user The primaryobjective is to reduce operating cost due to inventory storing or material lagging forthe company The specific tasks are listed below

 To minimize need for storing space, which help reduce the company expense

in order to maximize profitability

 To create an order of flow that will support monitoring the progress throughthe day and reduce last minute requests for overtime or delay of carrierdeparture

Staffing - assign staff to work functions and areas to minimize staging If thisprocess is performed well, the company can operate more effectively with less staffrequired, contribute to save cost for the company

Directing - ensuring the documented processes and procedures are embedded

in the warehouse management system and are consistently applied, used andappropriate for the nature of the work and service level intentions of the company(e.g., International Standards Organization 9000) This function may also be used todivide individual orders into logical work units and the ability to assign them toseparate individuals for performance, consistent throughput requirements andphysical layout, e.g., separating individual case picking from each unit picking, andindividual pallet load picking, to improve productivity and supporting Control.Controlling - providing milestones for management to monitor progressthrough the day, providing the opportunity to respond to problems in a timely way,and report data for performance analysis, ensure the goods are kept at bestcondition, easy to find Furthermore, it tends to reduce the waste caused byoperating inefficiency

1.2.4 Transport material

Without well-developed transportation systems, internal material supply chaincould not bring its advantages into full play A good transport system in supplychain activities could provide better efficiency, reduce operation cost, and promoteservice quality The improvement of transportation systems needs the effort fromboth public and private sectors A well-operated transport system could increaseboth the competitiveness of the government and enterprises

Transportation plays a connective role among the several steps that result inthe process of conversing resources into useful goods and deliver them to consumer

It require cooperator of all these functions and sub-functions into a system of goodsmovement in order to minimize cost maximize efficiency to business operation Thesystem, once put in place, must be effectively managed

1.2.5 Build up plan for supply

Planning is always play an important role, this step contribute greatly indetermining the profit that the entity will gain after deduct the cost of raw material(which include cost of exploiting, storing, transporting, processing) from therevenue get by selling the final good If this step is not conducted well, the entitymay have to suffer a great cost that sometimes causes negative profit There are Step 1: Acquire data from the operating department

Step 2: Analyze the given information

Step 3: Compare the information with data from previous period

Step 4: Point out the tendency of material consumption and forecast for theupcoming period

Step 5: Form up a report on material demand for the next period

Step 6: Submit the report to the directors for approval

In the modern economics environment, different firms have different supplystrategy Some have their own material supply chain, some contact and cooperatewith supplier, others combine both internal and external resource By any case, theplanning process is still an important step that performed by logistic department ofthe company Besides helping the firm to determine the material demand for thenext period, this process also provide firms information in making other economicdecision such as should the company continue to outsource or should it build theirown source of supply; or whether to increase the proportion of internal source ofsupply in the total supply chain or not A good supply strategy can help theorganization achieve global competitiveness, not only in cost but also in preparingthem to anticipate and proactively serve the needs of the customer throughincreased innovation.

1.2.6 Quality management

Quality management in supply stage can help provide organizations with asustainable competitive advantage by improving product quality and service whilereducing cost If the quality of the input is good, not only the quality of finishedproduct will be improve but also the useful life of company’s fixed asset will belonger, reduce the cost of maintaining and repairing

Manufacturing firms usually have testing board to perform quality controlprocess The materials are test to ensure the quality would meet the standard forprocessing in the next step To implement an effective quality control program, acompany should first decide which quality standards the product is required to meet.Then, management must select what percent of each batch of products will be testedfor quality Next, designated employees will test the products and report the results

to management Product quality testing methods will vary greatly depending on thetype of products the company manufactures

If defective products are found, management must decide whether to repair orreject those products If a large percentage of products have defects, management

will bring production to a halt until whatever is causing the problem is corrected.They will look over the quality assurance process and see why the problem was notprevented Management must ensure the quality control in manufacturing processesare ongoing to ensure all defects have been fixed and to detect new product defects

 Internal process and technology: The supply behavior is also affected by theinternal process of the company Base on the technology a manufacturer use

to operate, the demand for raw material will be unique For example:Company A and company B both operating in produce computer hardware,because of different in the production technology, company A require moregold to produce the same kind of product that company B provide to themarket

 Ethics: Ethics will affect mostly on how company choose its source and itsoperation method A company with high ethics standard will choose thesource of supply and the operation method that require least actions that ausebad effect to the environment

1.3.2 External factors

 Alternatives substitute: Different consumers have different needs, the list of

which is not only unique but also endless, and as an example someconsumers will be looking for the cheapest alternative while others may beseeking a locally produced alternative while others may seek an alternativefrom foreign supplier, or an alternative made out of stronger and moredurable materials

 Market condition: Market condition also plays a very important role in

changing the operation of internal material supply chain For example, thetrend of buying one class of product change quickly in the market, companymust increase its out sourcing proportion in the total supply chain anddecrease self-providing activities for flexibility in operation

 Price from external supplier : The price of external supplier is worth to

consider and compare with the cost to produce the same material internally.For a regular material, if the cost to produce material is cheaper than buying

it from supplier, company could add it in the internal material supply chain tosave cost On the other hand, managers can combine both method to balancethe cost with the flexibility in operation

 Customers with special need: When customer demand for a special element

to be add in the product, company must use the external resource to providematerial for that product instead of build up an internal material supply chainsince the special demand is very low