Improving internal material supply chain of nghi son cement corporation

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

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

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Tablet of Content

List of tables

List of figures

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, fraud risk of company staff and high inventory wasteratio Therefore, in order to compete with current and potential rival in the marketand for a long-term plan to extend the market to other country, Nghi Son CementCorporation 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

Manufacturer

r

Directsupplier Distributor Retailer

user

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

1.1.3 Role of internal material supply chain

Manufacturer

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 toprovide raw 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

•Evaluating: Besides preserving the good, storing material also play animportant role in evaluating the efficiency of business operation If the inventory isalways maintain at low level when company is operating at normal capacity, itmeans that the company’s business is running well, product are consumedimmediately after delivering to the market and company should consider to expandits 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 logistic department of a firm

In this thesis, we assume the department that control and operate the internalmaterial supply chain of a firm is the logistic department, which has several duties

of operation as follow:

1.2.1 Build up supply goal

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 areStep 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

1.2.2 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

1.2.3 Managing supply chain inventory

Another duty of internal material supply chain is to manage inventory Thiscan be broken-down to several tasks as follow:

•Managing warehouse and material flow to ensure the goods are kept at bestcondition, easy to find Furthermore, it tends to reduce the waste caused byoperating inefficiency

•Measuring and evaluating the performance of the supply chain and thewhole company by using statistical analysis on the material flow in the supplychain The result of the analysis will take part in managerial decision makingprocess in the future.

1.2.4 Cost management

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, thecost management process is still an important step that performed by logisticdepartment of the company This process help firms in making economic decisionsuch as should the company continue to outsource or should it build their ownsource of supply; or whether to increase the proportion of internal source of supply

in the total supply chain or not A good cost management strategy can help theirorganization achieve global competitiveness, not only in cost but also in preparingthem to anticipate and proactively serve the needs of the customer throughincreased innovation

1.2.5 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

1.3 Factors affect internal supply chain of business

1.3.1 Internal factors

•Business goal: The goal of the business will have significant influent on theinternal material supply chain Base on the goal setting of which kind of good tosold, how much revenue forecasted for the upcoming period, logistic departmentwill come up with different strategy for the supply chain

•Internal process and technology: The supply behavior is also affected by theinternal process of the company Base on the technology a manufacturer use tooperate, the demand for raw material will be unique For example: Company A andcompany B both operating in produce computer hardware, because of different inthe production technology, company A require more gold to produce the same kind

of product that company B provide to the market

•Ethics: Ethics will affect mostly on how company choose its source and itsoperation method A company with high ethics standard will choose the source ofsupply and the operation method that require least actions that ause bad effect to theenvironment

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 some consumers will

be looking for the cheapest alternative while others may be seeking a locallyproduced alternative whilst others may seek an alternative from foreign supplier, or

an alternative made out of stronger and more durable materials

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

changing the operation of internal material supply chain For example, the trend ofbuying one class of product change quickly in the market, company must increaseits out sourcing proportion in the total supply chain and decrease self-providingactivities 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 aregular material, if the cost to produce material is cheaper than buying it from

supplier, company could add it in the internal material supply chain to save cost Onthe other hand, managers can combine both method to balance the cost with theflexibility 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 chain sincethe special demand is very low

CHAPTER 2: THE ANALYSIS OF INTERNAL MATERIAL SUPPLY CHAIN AT NGHI SON CEMENT CORPORATION2.1 Company introduction

2.1.2 History of establishment and development

Nghi Son Cement Corporation (NSCC) is a Joint venture of Vietnam CementIndustry Corporation (VICEM) and two Japanese multinational corporations:Taiheiyo Cement (TCC) and Mitsubishi Materials Corporation The Joint venturewas established on 11th November 1995 On July 2000, the directors of Vietnamand Japan has launched the largest investment projects of Japan in Vietnam,including the main plant in Thanh Hoa Province and Distribution Terminal in HoChi Minh along with the sales system was put into production and businessactivities

In 2007, the second production line of the main plant and distribution station

in Khanh Hoa province was begin to construct On April 2010, the secondproduction line was officially completed, bringing the total capacity of the plant to4.3 million tons per year

Nghi Son Cement has a team of officers and staff with high management skillsand expertise, dynamic and innovative Employees enthuse in their work, willing tolearn to improve their knowledge and nevertheless, the workers with technicalguidance, regular training are precious resources of the Company

The total asset of Nghi Son Cement Corporation in the end of 2015 is 11,226Billion VND in which:

+ Value of fixed asset: 8662 Billions

+ Value of current asset: 2564 Billions

Figure 2.1: Organization structure of Nghi Son Cement Corporation 2.1.4 Function of Divisions

A Operating division:

The the operating division play an important role in the organization, which ismanufacturing goods for sell to the market