Applying logistics and supply chain management model to wholesale system in ho chi minh city

PHAM NHU HIEN APPLYING LOGISTICS AND SUPPLY CHAIN MANAGEMENT MODEL TO WHOLESALE SYSTEM IN HO CHI MINH CITY Major: Management Master in Management Thesis Advisor: Dr... - To adapt th

PHAM NHU HIEN

APPLYING LOGISTICS AND SUPPLY CHAIN

MANAGEMENT MODEL TO WHOLESALE SYSTEM

IN HO CHI MINH CITY

Major: Management

Master in Management Thesis

Advisor: Dr Ta Thi My Linh

Ho Chi Minh City

2007

Linh, my thesis advisor for her valuable guidance, encouragement, support, and sharing knowledge throughout my thesis

I would also like to express my deep gratitude to Professors of Universiteù Libre de Bruxelles, Solvay Business School and Ho Chi Minh City Open University for providing knowledge and giving valuable experience during my study

I would also like to take this opportunity to give my special thanks to my family, colleagues and friends for their continuing support

Logistics and SCM as a whole, is a fairly new management tool and one, which more and more companies are finding useful in giving them a competitive edge in business In today economy, optimization is the key word in any business success story and Logistics and SCM is one of the major applications in the business world which can address many of the challenges faced by an organization

As the economy in Vietnam changes and as competition becomes more global, it is

no longer company vs company operating in a domestic business environment but the Supply Chain vs Supply Chain The goal of any progressive company is to combine the many Logistics pipelines from manufacturer to final consumer, which include value-added processes that deliver innovative, high-quality, low-cost products on time with greater responsiveness that ever before and wholesale system

is not exceptionable

Wholesale system plays a key function in smoothly moving the flow of goods, cash and information within the whole distribution system This realization has led wholesale companies to look beyond their boundaries to evaluate how the resources

of their suppliers and customers can be utilized to create the exceptional value demanded by customers In theory, Supply Chain integration allows the organization to focus on doing exceptionally well a few things for which it has unique skills and advantages Non-core activities are then shifted to other channel members that possess superior capabilities in those areas When appropriate, close relationship are formed to ensure outstanding performance levels These allied

However, in reality, approaches to SCM vary substantially from organization to organization and even from manger to manger within the same company Indeed, few companies have adopted a formal definition of SCM Even fewer have carefully mapped out their Supply Chain so that they know who their suppliers’ supplier or customers’ customers really are and are able to find a way to apply successfully the Logistics and SCM to their organization

Therefore, the author chose the thesis: “Applying Logistics and SCM model to wholesale system in HCMC”

2 Objective of the research

- To make clear issues belong to literature review of Logistics, Supply Chain, SCM, wholesale

- To adapt theory of Logistics and SCM to wholesale system in HCMC to improve the management capacity of wholesale companies in the movement

of goods, the movement of cash and the movement of information

3 Scope and Limitation of the study

- Researching about the current applying Logistics and SCM situation of wholesale trading and distributing companies in consumer goods field in HCMC

- Researching and giving recommendation to improve the operation activities

of wholesale system and suggest a suitable Logistics and SCM model

First of all, secondary data is gathered and processed to provide a literature review

of current theory of Logistics, SCM, Wholesale system

The next step is to investigate the current situations of wholesale system in HCMC

by collecting reports from Government’s agency and through a qualitative research and through a questionnaire survey to analysis the current appliance situation of Logistics and SCM to wholesale companies

The third step is to give out some important recommendations to improve current operational activities of wholesale system and suggest a suitable Logistics and SCM model

5 Structure of the thesis

Chapter One: Literature review of Logistics, SCM and wholesale system

Chapter Two: The reality overview of the appliance of Logistics and SCM to wholesale system in HCMC

Chapter Three: Orientation for the appliance of Logistics and SCM to the wholesale system in HCMC

TABLE OF CONTENT

Title page

Undertaking Statement

Acknowledgement

Preface

Table of content

List of abbreviation

List of figure

List of table

Chapter 1: Literature review of Logistics, Supply Chain Management, Wholesale system.7

1.1 General literature review of Logistics and Supply Chain Management 7

1.1.1 Logistics – a part of supply chain 7

1.1.1.1 Definition of Logistics 7

1.1.1.2 Classification of Logistics 8

1.1.1.3 Logistics Management 9

1.1.2 Definition of SCM 11

1.1.2.1 Definition of supply chain and SCM 11

1.1.2.2 General operation of SCM 13

1.2 Function of Logistics and SCM 15

1.2.1 Strategic Function 16

1.2.2 Tactical function 16

1.2.3 Operational function 17

1.3 Objectives of Logistics and SCM 18

1.3.1 Reducing transportation and Logistics cots to minimum level 18

1.3.2 Reducing the investing capital in transportation system 18

1.3.3 Improving the customer service 18

1.4 Literature of wholesale distribution system 19

1.4.1 Definition of Wholesale 19

1.4.1.1 Definition 19

1.4.1.2 Type of wholesale 20

1.4.1.3 Wholesale Management 21

1.4.2 Organization Structure and Operational Process of wholesale company 23 1.4.2.1 Some popular organization structure 23

1.4.2.2 Operational Process 25

1.4.3 Function of wholesale in economy 27

1.4.3.1 Being a key chain in the whole distribution system of the economy 27 1.4.3.2 Increasing value added services which help to increase revenue 28

1.4.3.3 Ensuring the supply source for the market 29

1.4.4 The importance of the appliance of Logistics and SCM model to wholesale system 29

1.4.4.1 Ensuring the non-stop flow of commodity 30

1.4.4.2 Ensuring the movement of information flow 31

1.4.4.3 Ensuring the movement of cash flow 31

Chapter Two: The reality overview of the appliance of Logistics and SCM to wholesale system in HCMC 33

2.1 Overview of wholesale system in HCMC 33

2.1.1 Business result of wholesale system 33

2.1.2 Quantity and current situation of wholesale system in HCMC 36

2.2 Analysis of the current appliance of Logistics and SCM model of wholesale system in HCMC 39

2.2.1 Micro Analysis 39

2.2.1.1 Major Competence 41

2.2.1.2 Planning 43

2.2.1.3 Implementation 45

2.2.1.4 Monitoring and Adjustment 48

2.2.1 Macro analysis 51

Chapter Three: Orientation and recommendations to apply Logistics and SCM model to wholesale system in HCMC 55

3.1 The foundation to apply Logistics and SCM model to wholesale system in HCMC 55

3.1.1 Industrial view 55

3.1.2 Enterprise view 55

3.2 Orientation for the appliance of Logistics and SCM to the wholesale system in HCMC 57

3.3 Recommendations to build up a suitable Logistics and SCM model 58

3.3.1Recommendations to improve the current situation of wholesale system 58 3.3.1.1 Recommendations for enterprise 59

3.3.1.2 Recommendations for State 61

3.3.2 Recommendations to build up a suitable Logistics and SCM model 62

3.3.2.1 Model recommendation: create a vertical alliance – Integrated Logistics and SCM .62

3.3.2.2 Content of the model 63

3.3.2.3 Barriers to the outsourcing model 66

3.3.2.4 Benefits of the Model 68

3.3.2.5 Some remarkable for an successful outsourcing 69

Conclusion……… 73

Recommendation for further studies……….75 Bibliography

Appendix

LIST OF ABBREVIATION

3PL Third Party Logistics

CLM Council of Logistic Management

EDI Electronic Date Interchange

ERP Enterprise Resource Planning

GDP Gross Domestic Product

GSO General Statistics Office

HCMC Ho Chi Minh City

IMF International Monetary Fund

JIT Just-In-Time

KPI Key Performance Indicator

MPI Ministry of Planning and Investment

SCM Supply Chain Management

VCCI Vietnam Chamber of Commerce and Industry

WMI Warehouse Management Interchange

WMS Warehouse Management System

WTO World Trade Organization

LIST OF FIGURE

Figure 1: Logistics process 8

Figure 2: Business Logistics activities 9

Figure 3: Logistics Management Flow 10

Figure 4: An example of supply chain 11

Figure 5: Supply Chain Management Integration 12

Figure 6 : Hierarchy of Supply Chain Function 15

Figure 7: Wholesaler’s position in the distribution channel 19

Figure 8: An example of functional structure 23

Figure 9: An example of Multi-divisional structure 24

Figure 10: An example of Matrix structure 25

Figure 11: Distribution channel without wholesaler 27

Figure 12: Distribution channel with wholesaler 28

Figure 13: The importance of Logistics and SCM to wholesale 30

Figure14: Total sales of goods and services of HCM city from 2000 to 2006 36

Figure 15: Appliance of Logistics and SCM situation 40

Figure 16: Overall statistic of 98 companies for 04 parts of the questionnaire 41

Figure 17: Major Competence Score Summary 42

Figure 18: Internal policy score summary 43

Figure 19: Percentage of companies doing planning 44

Figure 20: Planning strategy’s component score summary 45

Figure 21: Implementation ability as per percentage 46

Figure 22: Summary score of outsourcing field 47

Figure23: Transportation problems met by wholesale distribution companies in HCMC 48

Figure 24: Monitoring and Adjustment ability as per percentage 49

Figure 25: Summary score of popular monitoring tools 50

Figure 26: Integrated Logistics and SCM Model 63

Figure 27: Logistics and SCM activities which 3PLs can offer to customer 64

LIST OF TABLE

Table 1: The contribution of Trade to GDP of HCM city in 2006 34 Table 2: Total sales of goods and services in 2006 of HCM city by economic sectors 34 Table 3: Total retail sales of goods and services of HCM city by economic activity 35 Table 4: Assess the effectiveness of Vietnam transport policies 52 Table 5: Percentage of transport mode used for moving freight 53

Chapter 1: Literature review of Logistics, Supply Chain Management, Wholesale system

1.1 General literature review of Logistics and Supply Chain Management 1.1.1 Logistics – a part of supply chain

1.1.1.1 Definition of Logistics

Logistics is the art and science of strategically managing and controlling the flow of goods, energy, information and other resources like products, services, and people from the source of production to the marketplace The Oxford English dictionary defines Logistics as: “The branch of military science having to do with procuring, maintaining and transporting material, personnel and facilities.”

This definition puts logistics in a military context To the extent that business objective and activities differ from those of the military, this definition does not capture the essence of business logistics

Business Logistics is a process which interfaces and interacts with the entire company and with external companies, vendors, customers, carriers and more It is not shipping and receiving, nor is it traffic or warehousing It is more Business Logistics is responsible for the movement of products from vendors right through to the delivery at your customer's door, including moves through manufacturing

facilities, warehouses, third-parties In general, Logistics can be defined as having

the right item in the right quantity at the right time for the right price with the least costly amount

Figure 1: Logistics process

1.1.1.2 Classification of Logistics

• Basing on process:

information, capital) ultimately both in location, time and cost for production stage

ultimately both in location, time and cost in order to maximize the profit

incurring from production, distribution and consuming process which may cause harm to environment back to recycle or give treatment

• Basing on industry:

Military Logistics

In military logistics, experts manage how and when to move resources to the places they are needed In military science, maintaining one’s supply lines while disrupting those of the enemy is a crucial element of military strategy, since an armed force without food, fuel and ammunition is defenseless

Business Logistics

In the business, Logistics may have either internal focus, or external focus, covering the flow and storage of materials from point of origin to points of consumption The main activities include Inventory Management, Purchasing, Transport, Warehousing, and the organizing and planning of these activities

Figure 2: Business Logistics activities

machine and workstation is being fed with the right product in the right quantity and quality at the right point in time The issue is not the transportation itself, but to streamline and control the flow through the value adding processes and to eliminate non-value adding ones Production logistics provide the means to achieve customer response and capital efficiency

1.1.1.3 Logistics Management

According to the CLM, a professional organization of logistics managers, educators, and practitioners formed in 1962 for the purpose of continuing education and fostering the interchange of ideas, Logistics Management is the process of planning,

implementing, and controlling the efficient, cost-effective flow and storage of raw materials, in-process inventory, finished goods and related information from point

of origin to point of consumption for the purpose of conforming to customer requirements

Figure 3: Logistics Management Flow

These are the boundaries and relationships of Logistics Management adopted by the CLM: "Logistics Management activities typically include inbound and outbound transportation management, fleet management, warehousing, materials handling, order fulfillment, logistics network design, inventory management of third party logistics services providers To varying degrees, the logistics function also includes sourcing and procurement, production planning and scheduling, packaging and assembly, and customer service It is involved in all levels of planning and execution strategic, operational and tactical Logistics Management is an integrating function, which coordinates and optimizes all logistics activities, as well

as integrates logistics activities with other functions including marketing, sales manufacturing, finance and information technology."

1.1.2 Definition of SCM

1.1.2.1 Definition of supply chain and SCM

Various definitions of a supply chain have been offered in the past several as the concept has gained popularity The APICS Dictionary describes the supply chain as:

1 the processes form the initial raw materials to the ultimate consumption of the finished product linking across supplier-user companies; and

2 the functions within and outside a company that enable the value chain to make products and provide services to the customer

Another source defines supply chain as, the network of entities through which material flows Those entities may include suppliers, carriers, manufacturing sites, distribution centers, retailers, and customers The Supply Chain Council (1997) uses the definition: “The Supply Chain – a term increasingly used by logistics professionals – encompasses every effort involved in producing and delivering a final product, from the supplier’s supplier to the customer’s customer Four basic processes – plan, source, make, deliver – broadly define these efforts which include managing supply and demand, sourcing raw materials and parts, manufacturing and assembly, warehousing and inventory tracking, order entry and order management, distribution across all channels, and delivery to the customer.”

Figure 4: An example of supply chain

In addition to defining the supply chain, several authors have further defined the concept of SCM As defined by Ellram and Cooper (1993), SCM is “an integrating philosophy to manage the total flow of a distribution channel from supplier to ultimate customer” Monczka and Morgan (1997) state that “integrated SCM is about going from the external customer and then managing all the processes that are needed to provide the customer with value in a horizontal way”

SCM coordinates and integrates all of these activities into a seamless process It links all of the partners in the chain including departments within an organization and the external partners including suppliers, carriers, third party companies, and information systems providers Managers in companies across the supply chain take

an interest in the success of other companies They work together to make the whole supply chain competitive They use technology to gather information on market demands and exchange information between organizations A key point in SCM is that the entire process must be viewed as one system Any inefficiencies incurred across the supply chain (suppliers, manufacturing plants, warehouses, customers, etc.) must be assessed to determine the true capabilities of the process Figure 5 describes the total integration required within the supply chain

Figure 5: Supply Chain Management Integration

Total Information Visibility

1.1.2.2 General operation process of SCM

Operation process of SCM involves collaborative work between buyers and

suppliers, joint product development, common systems and shared information It is

suggested key critical SCM process combining these processes stated by Lambert

(2000) such as: Customer service management process; Procurement management;

Product development and Commercialization; Inventory flow management;

Physical Distribution; Performance Measurement

• Customer service management process

Customer service provides the source of customer information It also provides the

customer with real-time information on promising dates and product availability

through interfaces with the company’s production and distribution operations

• Procurement

In firms where operations extend globally, sourcing should be managed on a global

basis Activities related to obtaining products and materials from outside suppliers

This requires performing resource planning, supply sourcing, negotiation, order

placement, inbound transportation, storage and handling and quality assurance Also,

includes the responsibility to coordinate with suppliers in scheduling, supply

continuity, hedging, and research to new sources or programs

• Product development and commercialization

Here, customers and suppliers must be united into the product development process,

thus to reduce time to market As product life cycles shorten, the appropriate

product must be developed and successfully launched in ever shorter schedules to remain competitive It is required:

time-1 coordinate with customers relationship management to identify articulated needs;

customer-2 select materials and suppliers in conjunction with procurement, and

3 develop production technology in manufacturing flow to manufacture and integrate into the best supply chain flow for the product/ market combination

• Inventory flow management process

Orders are processes operating on a JIT basis in minimum lot sizes Also, changes in the manufacturing flow process lead to shorter cycle times, meaning improved responsiveness and efficiency of demand to customers Activities related to planning, scheduling and supporting manufacturing operations, such as work-in-process storage, handling, transportation, and time phasing of components, inventory at manufacturing sites and maximum flexibility in the coordination of geographic and final assemblies postponement of physical distribution operations

• Physical Distribution

This concerns movement of a finished product/service to customers In Physical distribution, the customer is the final destination of a marketing channel, and the availability of the product/ service is a vital part of each channel participant’s marketing effort It is also through the physical distribution process that the time and space of customer service become an integral part of marketing, thus it links a marketing channel with its customers (e.g links manufacturers, wholesalers, retailers)

• Performance Measurement

As logistics competency becomes a more critical factor in creating and maintaining competitive advantage, logistics measurement becomes increasingly important because the difference between profitable and unprofitable operations becomes narrower According to experts internal measures are generally collected and analyzed by the firm including: Cost, Customer Service, Productivity measures, Asset measurement, and Quality

1.2 Function of Logistics and SCM

SCM is a cross-functional approach to managing the movement of raw materials into an organization and the movement of finish goods out of the organization toward the end-consumer These functions are increasingly being outsourced to other corporations that can perform the activities better or more cost effectively The effect has been to increase the number of companies involved in satisfying consumer demand, while reducing management control of daily logistics operations

Figure 6: Hierarchy of Supply Chain Function

• Product design coordination, so that new and existing products can be optimally integrated into the supply chain, load management

• Information technology infrastructure, to support supply chain operations

• Where to make and what to make or buy decisions

• Align Overall Organizational Strategy with supply strategy

1.2.2 Tactical function

• Sourcing contracts and other purchasing decisions

• Production decisions, including contracting, locations, scheduling, and planning process definition

• Inventory decisions, including quantity, location, and quality of inventory

• Transportation strategic, including frequency, routes, and contracting

• Benchmarking of all operations against competitors and implementation of best practices throughout the enterprise

• Milestone Payments

• Performance tracking of all activities

1.3 Objectives of Logistics and SCM

1.3.1 Reducing transportation and Logistics costs to minimum level

Cost reduction is the objective directed toward minimizing the variable costs associated with movement and storage The best strategy is usually formulated by evaluating alternative courses of action, such as choosing among different warehouse locations or selecting among alternative transport modes Service levels are typically held constant while the minimum cost alternatives are being found Profit maximization is the prime goal

1.3.2 Reducing the investing capital in transportation system

Capital reduction is the objective directly toward minimizing the level of investment

in the logistics system Maximizing the return on investment is the motivation for this strategy Shipping direct to customers to avoid warehousing, choosing public warehoused over privately owned warehouses, selecting a just-in-time supply approach rather than stocking to inventory, or using third-party providers of logistics services are examples

1.3.3 Improving the customer service

A product or service is of little value if it is not available to customers at the time and place that they wish to consume it When a firm incurs the cost of moving the product toward the customer or making an inventory available in a timely manner, value has been created for the customer that was no there previously It is value as surely as that created through the production of a quality product or through a low price

1.4 Literature of wholesale distribution system

1.4.1 Definition of Wholesale

1.4.1.1 Definition

According to the United Nations Statistics Division, Wholesale is the resale (sale without transformation) of new and used goods to retailers, to industrial, commercial, institutional or professional users, or to other wholesalers, or involves acting as an agent or broker in buying merchandise for, or selling merchandise, to such persons or companies Wholesalers frequently physically assemble, sort and grade goods in large lots, break bulk, repack and redistribute in smaller lots, for example pharmaceuticals; store, refrigerate, deliver and install goods, engage in sales promotion for their customers and label design."

Wholesalers will deal with issues such as customs regulations and import taxes and may indeed organize the transport from a foreign country They may also warehouse goods and provide inland transport to more localized retailers / distributors So they can provide a wide range of administrative / logistics services

Figure 7: Wholesaler’s position in the distribution channel

Wholesaling includes all the activities involved selling goods or services to those who buy for resale or business use Wholesaling excludes retailers Wholesalers (also called distributors) differ from retailers in a number of ways First, wholesalers pay less attention to promotion, atmosphere, and location because they are dealing with business customer rather than final customers Second, wholesale transactions are usually larger than retail transactions, and wholesales usually cover

a larger trade area than retailers Third, the government deals with wholesalers and retailers differently in terms of legal regulations and taxes

1.4.1.2 Type of wholesale

In addition to being classified by kind of business, each wholesale establishment was classified for the census by type of operation according to the ownership of the business, ownership of the goods sold, or character of the principal transactions Establishments in wholesale trade are grouped into the following three major types

of operation and related subgroups:

• Merchant Wholesalers

Establishments primarily engaged in buying and selling merchandise on their own account Included here are such types of establishments as wholesale merchants or jobbers, industrial distributors, voluntary group wholesalers, importers, exporters, cash and carry wholesalers, retailer cooperative warehouses

• Manufacturers’ Sales Branches and Offices

Establishments maintained by manufacturing, refining, and mining companies apart from their plants or mines for marketing their products at wholesale Branch stores selling to household consumers and individual users are classified in retail trade

Sales branches and offices located at plants and administrative offices are included when separate records are available

• Agents, Brokers, and Commission Merchants

Establishments of wholesale operators are in business for themselves and are primarily engaged in selling or buying goods for others Included here are such types of operations as auction companies, import agents, export agents, selling agents, merchandise brokers, and commission merchants ‘‘Sales’’ as shown in census publications for agents, brokers, and commission merchants represent the gross sales (or purchase) value of the goods in the transactions negotiated

1.4.1.3 Wholesale Management

Wholesaler plays an intermediary position in the whole distribution channel Goods, information, cash of the whole distribution system flow through wholesale Therefore, wholesale management hold an important role in ensuring the movement of goods, maximizing the profit by reducing operation costs, enabling the transparent information of the whole system

The movement of goods is from the raw material supplier to producer to wholesaler

to retailer and to end user Producer buys materials then manufactures to consumption goods Wholesaler may purchase from several manufacturer, domestics and oversea, and bring items to their warehouse Here, wholesale will do assortment process such as allocation or customization Allocation refers to breaking down a homogenenous group of products into smaller and smaller lot sizes to more closely match with retailer’s requirements Products receive from manufacturer in truckload may in turn be sold in case quantities Customization refers to regrouping the products into an assortment of items for resale to uniquely meet a specific retailer’s requirements Wholesaler builds mixed assortments of products for

retailer Finally, wholesaler will do the shipping to customers when and where specified

Together with the flow of goods, there is a backward flow of cash The cash flow will move back from retailer to wholesaler to producer It can say that if the wholesaler can manage their business well, can reduce their operation costs, the price of goods can be reduced much As principle, wholesale buys products from producer, marks up then re-sale to retailer, retailer marks up once more time to sell

to end-user The cost reduction can result from wholesaler who moving large quantities of product to the concentration location rather than each supplier individually shipping small quantities directly to customers All operational process

of wholesaler from procurement, warehouse, shipping to distribution involve to Logistics and SCM Therefore, to be able to reduce the cash flow amount for the whole distribution system, wholesaler must apply Logistics and SCM model to optimize their activities

Accompanying with goods and cash flow is information flow The information flow will be moved in both straight ward and backward: from producer to wholesaler, from wholesaler to retailer, from retailer to end-user and vice versa Wholesaler has duty to give feedback and give market forecast to producer to improve their products and to orient their production plan The information flow may be interrupted due to the lack of controlling Therefore, wholesaler needs to build up a information system through modern IT solution to ensure updating and visible management information

1.4.2 Organization Structure and Operational Process of wholesale company

1.4.2.1 Some popular organization structures

As per research, there are three popular organization structure models widely applied in wholesale system: functional structure, multi-divisional structure and matrix structure

• Functional structure

Organizations that grow too complex to be administered through a simple structure usually adopt the functional structure as a means of coping with the increased demands of differentiation The characteristic of the structure is that it groups activities according to a logical of similarity in work functions produced by interdependent tasks and common goals (Figure 8)

Figure 8: An example of functional structure

The functional structure also gives the top manager in the organization tight to control in the sense that this individual in the only person whose position grants them the big picture with respect to what everyone else is doing in the organization

• Multi-divisional structure

In developmental terms, the organization that outgrows a functional structure will often turn to the multi-divisional form as a means to alleviate overburdened centralized decision makers (Figure 9)

GENERAL MANAGEMENT

PURCHASI NG MARKETI NG SALES ACCOUNTI NG

Figure 9: An example of Multi-divisional structure

The multi-divisional structure is essentially a set of separate functional structures that reports to a headquarters staff Each functional structure is responsible for managing its day-to-day internal operations, while the headquarter staffs are primarily responsible for monitoring and managing the organization’s relationship with its environment and for formulating strategy

The multi-divisional form groups people, positions, and units in one of three ways, either by similarities in production processes (or products), customer type, or geographical region of activity

• The Matrix Structure

The matrix structure was developed with the intention of providing the best of both the functional and multi-division alternative, the matrix structure is intended to combine the efficiency of the functional structure with the flexibility and responsiveness of the divisional structure This is accomplished by overlaying functional and divisional structure rather than allowing the logic of product, customer base, or geography to take priority over the functional logic that occurs in the divisional structure (Figure 10)

GENERAL MANAGEMENT

DI VI SI ON B DI VI SI ON A DI VI SI ON C

PUR MKG SALES PUR MKG SALES PUR MKG SALES

Figure 10: An example of Matrix structure

In matrix organization, functionally specialized employees are assigned to one or more project teams These assignments are often made through a process of negotiation between the functional and project managers, sometimes with input from the teams involved or potential members Project teams are made up of a group of employees having the variety of different functional specialties required

by the project An employee assigned to a project reports to two managers – the functional chief and the project manager Employees assigned to multiple projects may have several bosses

1.4.2.2 Operational Process

The wholesaling process is an intermediate step in the distribution of merchandise Wholesalers are organized to sell or arrange the purchase or sale of (a) goods for resale (i.e., goods sold to other wholesalers or retailers), (b) capital or durable non-consumer goods, and (c) raw and intermediate materials and supplies used in production

Many occupations are involved in wholesale trade, but not all are represented in every type of wholesale trade firm Merchant wholesalers, by far, make up the

largest part of the industry The activities of these wholesale trade firms commonly center on storing, selling, and transporting goods As a result, the four largest occupational groups in the industry are managers and supervisors department; office and administrative support department, sales and marketing department; and transportation and material moving department

Management and business and financial operations workers direct the operations of

wholesale trade firms General and operations managers and chief executives

supervise workers and ensure that operations meet standards and goals set by top management Managers with ownership interest in smaller firms often also have

some sales responsibilities First-line supervisors oversee warehouse workers - such

as clerks, material movers, and truck drivers - and see that standards of efficiency are maintained

In order to provide manufactured goods to businesses, governments, or institutional

customers, merchant wholesalers employ large numbers of wholesale buyers and

resale, based on price and what they think customers want Purchasing managers coordinate the activities of buyers and determine when to purchase what types and quantities of goods

Transportation and materials moving department check the contents of all shipments, verifying condition, quantity, and sometimes shipping costs They may use computer terminals or barcode scanners and, in small firms, may pack and

unpack goods Order clerks handle order requests from customers, or from the

firm’s regional branch offices in the case of a large, decentralized wholesaler These workers take and process orders, and route them to the warehouse for

packing and shipment Often, they must be able to answer customer inquiries about products and monitor inventory levels or record sales for the accounting department

1.4.3 Function of wholesale in economy

This section will provide an overview of three major functions of wholesale towards the economy:

1.4.3.1 Being a key chain in the whole distribution system of the economy

Wholesaler plays a key role in the whole distribution system of the economy since it can help to minimize the total transaction Figure 11 show a simple structure with three manufacturers and six customers For simplicity, assume the customers are retailers who are attempting to develop an assortment for resale to their consumer markets In this figure, each retailer buys directly from each manufacturer, requiring a total of 18 separate transactions, each with its associated order placement, order processing, and order fulfillment cost, including the cost of transportation of relatively small quantities from the manufacturers to the individual retail locations

Figure 11: Distribution channel without wholesaler

Figure 12 introduces one wholesaler into the structure to accomplish the entire process of assortment The wholesaler purchases the output of each manufacturer, which is delivered to one location The wholesaler then breaks bulk and customizes quantities according to each retailer’s specific requirements and transport to individual retail locations

Figure 12: Distribution channel with wholesaler

The total number of transactions is reduced to nine for saving in order placement, processing, and fulfillment costs can be substantial Furthermore, the cost of transportation is substantially reduced because there are only 9 transportation movements, rather than 18 individual small quantity shipments Since both the manufacturers’ and the retailers’ costs are lower, the potential for lower for a lower total cost system exists

1.4.3.2 Increasing value added services which help to increase revenue

Wholesale enables value-added revenue opportunities while maximizing organizational assets through following service offerings like packaging, logistics, consumption orientation; leverage of inventory consignment programs; and the ability to plan, dispatch and bill for product installation and maintenance services,

Wholesaler

including support of technical and product inquiries from customers and partners Additionally, the solution provides the ability to expand into e-commerce selling channels through fully integrated internet selling and service support

1.4.3.3 Ensuring the supply source for the market

Wholesale’s main function is to deliver the right product, in the exact quantity, at a competitive price, from the best location Forecasting the optimal product mix, increasing the velocity of the sales and delivery cycle, leveraging buying activity and related discount frameworks, maximizing freight loads, and compressing accounts receivable days sales outstanding all need to be orchestrated into a cohesive business model to ensure the commodity flow uninterrupted

Wholesale’s integrated logistics and financials ensure that customers get what they ordered at the agreed upon price, which minimizes billing disputes and streamlines the reconciliation process to expedite payment

1.4.4 The importance of the appliance of Logistics and SCM model to wholesale system

Applying the Logistics and SCM model to the wholesale system can help these companies tackling with matter of how to tackle with the movement of goods, the movement of information and the movement of funds (cash flow) in the most efficiency

Figure 13: The importance of Logistics and SCM to wholesale

1.4.4.1 Ensuring the non-stop flow of commodity

An efficient logistics and SCM strategy will help to fasten and smoothen the movement of products, avoid the lack of supply and can tackle with unpredicted situations like shortage of inventory, late delivery of goods for a special event etc More and more products are on demand due to improving life standard and the supply sources are diversified, beyond the boundary Product movement requires a capacity to handle on international level, and the impact ripples throughout the supply chain Shipping between countries involves more than shipping between states

Sometimes, forecasting may be the weak link in all corporate planning and execution So the Logistics and SCM must be able to adjust and deal with the swings in business activity This may require a multi-mode, and/or a multi-carrier and/or multi-level service program to keep the global supply chain moving smoothly For example, it may require a mix of ocean and air modes to keep a smooth pipeline, especially if there are significant swings in volumes and requirements

1.4.4.2 Ensuring the movement of information flow

It is not enough to move product and materials Locating them is more important The information of what inventories is where and if critical action is required The information of what orders is coming in and when they must be delivered Information-timely and accurate- is vital for sound decision-making

Since logistics is a process which interacts with many other groups in the company,

it is fundamental that a corporate system be in place It will be in charge of handling customer orders, production planning, material requirements planning, distribution requirements planning, finance and sales forecasting Basing on logistics and SCM, the manager can have a broad view of the in-bound quantity, current and future market trend through supply chain utilities like updating tracking information of a import/export shipment via EDI, daily reports from WMS

1.4.4.3 Ensuring the movement of cash flow

Numerous costs are incurred with international Transportation is an obvious cost Freight prices can vary widely for export and import, or by trade lane There are new costs, not just transportation Customs duties, insurance, fees to brokers and forwarders and other fees are part of the landed cost for international trade There is additional warehouse cost to unload or load loose cargo, not on pallets Additional inventory is carried, whether it is shown as raw materials, work in process or finished goods

As above described, logistics and SCM costs usually count a large part of the cash flow of an enterprise Sometimes, the transportation cost is higher than the value of the goods

Minimizing the cost of the various logistics elements, such as freight and warehousing, can optimize the effectiveness of the logistics group and of the company in satisfying its customer

as the cash flow With techniques of Logistics and SCM, wholesale system can operate at the most efficient capacity

Chapter Two: The reality overview of the appliance of Logistics and SCM to wholesale system in HCMC

2.1 Overview of wholesale system in HCMC

2.1.1 Business result of wholesale system

According to a recent survey of Investment and Trade Promotion Center of HCM, in

a value chain of a product, Research and Development counts 30%, production cost counts 30% and distribution counts 40% In reality, many distributors have a powerful affect to the production of producers The latest publication from GSO on

29 December 2006 announced GDP of HCMC in 2006 estimated VND196046 billion, in which trade contributed VND23133 billion, equivalent to 12.3%, the highest contribution in the service sector

Estimate

2006

Structure (%) 2006 vs 2005 (Unit: VND, Billion) 2005 2006 2005 2006

Gross Domestic Product 196046 100 100 112.2 112.2

Table 1: The contribution of Trade to GDP of HCMC in 2006

Estimate total sales of goods and services of Vietnam was VND580710 billion, in particular HCMC reached the highest record VND131902 billion, increased 22.5%

in comparison with 2005 The sale turnover of economic sectors: