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Zed Company’s Logistics Management Challenges Report

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Updated: Jul 17th, 2020

Introduction

Zed is a medium-sized company operating in Australia. The company is faced with a number of logistical problems. These challenges come at a time when the company has numerous opportunities for expanding its market in Asia and beyond. These problems include supplier inadequacies, lack of sufficient inventories to meet the ever-increasing consumer demand, and distribution issues.

Immediate issue

The most important immediate issue confronting Zed Company is the establishment and maintenance of sufficient inventory levels to ensure client product supplies are reliable. The company is exploring various options to meet inventory levels that are sufficient to meet the requirements of clients within the emerging Asian and South-East Asian Countries. The company has landed an excellent opportunity to improve its sales in the Asian market through De Oro Pty Ltd, which is a leading exploration and exploitation company in Asia. These two companies have established a strong trading relationship with De Oro opting to purchase Zed’s products. This relationship has helped Zed Company in establishing itself in the Asian market.

However, the deliveries of Zed products to De Oro are limited due to the low inventory levels maintained by Zed. De Oro is about to be approved to conduct exploration and exploitation projects in Southern Vietnam and is concerned about whether Zed company will meet timely deliveries of the product during the project.

Basic issues

Some of the basic issues facing Zed Company are as follows:

  • Lack of investigation of the current suppliers and new supply opportunities for the company by the purchasing department
  • Small suppliers who have no capacity to meet the surge in levels of product supplies in the local and international market
  • Establishing and maintaining sufficient inventory levels
  • Inadequacy of IM/IT tools relied on by the purchasing department
  • Increasing customers’ complaints as a result of delayed deliveries of orders
  • Supplier slip on the delivery of important components in the manufacture of products and their spare parts
  • Inharmonious relationship between marketing and the purchasing departments
  • Custom regulation role in the delay of deliveries of products in the Asian market
  • Lack of local support to customers in the Asian market
  • Establishment of distribution centres in the foreign and domestic markets

Strategic perspective

Despite the above-mentioned problems facing Zed, the company has strategic potential to solve and overcome these problems. The company has the potential to help the purchasing department in exploring alternative options. This will ensure a steady and timely supply of product and components for timely assembling of the final products and spare parts. Additionally, the company has the capacity to increase its inventory levels after ensuring that more supplies from alternative sources reinforce the supplies from small suppliers. Moreover, the company has the potential of establishing distribution centres to ensure timely delivery of finished products in the foreign Asian market, which is promising to increase its sales volume in the near future. In addition, Zed has strategic potential to establish customer support services in foreign markets. This will coordinate and facilitate logistical issues arising from the trade between Zed Company and the Asian market.

Issue analysis

One of the major issues affecting the company is the complacence of the purchases department in the review of suppliers’ potential and identification of new supply opportunities for the company. Efficient procurement of goods and services are vital to organizations to access reliable suppliers that ensure sustained production of finished products (‘Business Management’, 2004). According to the ‘Business Management’ (2004), suppliers need to supply the required raw materials for the production of finished goods to meet consumer demand in a reliable manner. Zed’s purchasing department fails to review supplier capabilities of meeting the requirements of the company in situations whereby an increased supply of finished products is required. Additionally, carrying out of investigation on suppliers is important for a company to identify new opportunities in the supply chain that can be utilized in the logistical strategies of a business.

For a long period, Zed Company has been contracting small-scale suppliers for the supply of components used in the production of Q-10SD, spare parts, and other products. Though the purchasing department has executed its role in the identification suppliers who fit its corporate strategy efficiently, the small suppliers identified fail to deliver on the flexibility needed in certain areas. The small suppliers are unable to meet the large volumes of supplies needed to meet Zed requirements during surge periods. Given the manufacturing limitations of these small-scale suppliers, Zed fails to receive additional supplies in time to beat the deadlines for supply of products to its customers. This problem is created due to the inability of small suppliers to expedite the manufacturing process of components to be utilized by Zed in the manufacture of its finished products. This scenario presents the company in a tight situation. This is with regard to product delivery to its customers in the Asian market.

Establishing and maintaining sufficient inventory level is another chronic problem affecting Zed Company. Zed’s inventory majorly consists of custom-made equipment, generic equipment, and a number of spare parts. Zed management places great emphasis on good working and ordering parts used in the manufacture of the products identified by customers. The management disregard any urgency of holding any inventory by the company. The purchasing department orders only what is required to meet the production requirements as ordered by the customers. The purchasing team is not supportive of the idea of holding inventory to reduce the risk of obsolescence that may occur due to problems associated with inventory control. Zed seems to lag behind on inventory management. According to Byeong-Yun and Byungjoo (2012), procurement departments should have a periodic review of production inventory to determine the inventory levels that need to be maintained in order to meet client demand. The two are also of the opinion that inventory levels should be demand-dependent. They also argue that the organization should maintain inventories to meet demand at any point in time. However, Zed’s purchasing department opt not to maintain sufficient inventories in view of raising units manufactured to meet the ever-increasing demand in the Asian market.

Some logistical operations made by the company are incapacitated due to the inadequacy of the IM/IT systems used. The purchasing department lacks a specialized system application that can be used efficiently in procurement and inventory control. The purchasing department still relies on email in the placement of purchase orders and inquiries to suppliers. On the other hand, the Excel spreadsheet is used in performing inventory control hence difficulties in inventory level follow-ups. Much time is wasted in tracking the status of orders placed by customers leading to slow delivery of goods to clients. The expansion of Zed market in Asia has stretched the current system thus necessitating a change in the current system purchasing and inventory control system.

According to Kuan-Yu and Tian-Sheng (2010), flexible and timely warehousing activities are vital in the smooth running of logistic systems. This will enable quick response to customer requirements and effective inventory and supply chain management (Kuan-Yu & Tian-Sheng, 2010). In contrast, Zed does not seriously focus on the development of an efficient warehousing system, and this has resulted in the delayed response to customer requirements. Furthermore, the company does not factor the development of warehousing system in the budgetary allocations of the company operations.

Over the years, Zed Company has placed great emphasis on customer satisfaction. The quality of customer service in the past has earned the company a good reputation among its clientele. Quality customer services in supply of products, problem resolution, and customer follow-ups have been the primary concern of the organization for a long period. However, the number of customer complaints has risen in the last six months. The majority of Asian market clients are complaining about delays including belated confirmation of orders by the marketing department, as well as slow and late deliveries of orders. This is an issue of concern for the company. The company attributes these delays to its small-scale suppliers, insufficient inventories, lack of spare parts, and customs and transportation logistics to the Asian market. The company acknowledges this problem and it is exploring various options to prevent this situation from adversely tainting its good reputation in the international market.

Suppliers are equally contributing to the current situation facing Zed. Zed has contracted small suppliers to supply manufacturing components to be used in its final products and spare parts. From time to time, these suppliers have slipped in the supply product components. Suppliers’ failure to respond to additional quotes for work leads to late deliveries of finished products to Asian market. Zed has to wait for the supplies before assembling the finished products. Majority of the suppliers are incapacitated and cannot manufacture additional components to meet the increasing demand of Zed products in the Asian market.

Internal issues also seem to cripple distribution logistics at Zed organization. Some of the challenges that the company is facing are due to incoherent relationship between the purchasing and marketing department. Purchasing department is not pleased with the pressure that it is getting from the marketing department. The purchasing department complains about the issue of the marketing department to conduct suppliers as a follow-up on the status of certain orders. The purchasing department feels that the marketing department is going out by interfering with its obligation. Conversely, the marketing department thinks that the purchasing department majorly causes the delays in delivery of orders to clients. In this case, the purchasing department is said to have delays in the procurement of the necessary material and components for the manufacture of finished products. The marketing department blames the manufacturing department for its failure to meet order deadlines.

Transportation and custom regulations are thought to be affecting the supply of logistic of Zed company products into the Asian markets adversely. Zed Company is not used to numerous international logistic, and owing to this inexperience, the company has had a problem in ensuring that products reach customers in good time. Custom requirements and regulations differ differently from one country to another thus contributing to delays in delivery of orders. Additionally, languages and differences in customs requirements create bureaucratic issues hence interfering with the expedition of distribution of finished products. Furthermore, the failure to have timely deliveries of finished products to the Asian market is aggravated by lack of foreign distribution centres. The management argues that it can meet customer needs sufficiently from its Brisbane location. Therefore, there is no need for foreign distribution centres. Additionally, the lack of support services in Asian market seems to compound the other issues facing Zed in the international market. The company is faced with a dilemma of whether to have customer support services in the Asian market to coordinate and facilitate logistical issues between Zed and its clients.

Alternatives or options

In view to arrest the above issues, Zed can maintain the status quo and continue with its supply logistics. This means that the Zed will have to stick to its original suppliers for the provision of product components, low levels of inventories, and manufacture of finished products depending on orders placed by the clients. This implies that Zed should not alter any of its logistic strategies for the sake of securing Asian market.

Zed can also consider De Oro’s proposal, and manufacture and distribute in Asia. This move comes with only one advantage. In this regard, the company will be able to make deliveries of customer without any delays. This will reduce transportation costs and customs fees. In this case, the company risks losing its proprietary information to another company: De Oro. Thus, De Oro may turn out to be Zed’s main competitor due to sharing of product manufacturing information. Zed Company can also accept the De Oro proposal with some amendments. These amendments could be having exclusive rights in the manufacture of the products. Therefore, De Oro can only provide facilities for manufacture without direct involvement in the manufacturing information. The merit of this option is that Zed will be able to shorten the logistical chain considerably. This is in respect to the supply of manufacturing components from foreign suppliers in Asia and distribution of finished products. The demerit of pursuing this option is that there is a possibility of high manufacturing costs because of the De Oro facility that Zed will be using.

Zed can also engage in the investigation of additional suppliers in Asia similar to the current practices. The advantage of this option is that the company will be able to get new suppliers to add to the present suppliers. In turn, this will enable the purchases department to order enough supplies to meet the additional orders placed by clients thereby making deliveries within deadline. The preference of small-scale suppliers by Zed may have the same limitation as present if there is going to be increased additional demand of finished products.

Zed has also an alternative to reorganize its corporate structure with the chosen corporate strategy of geographical diversification. This option can be explored since the company has already diversified its marketing activities strategically on the international front especially in the Asia. If Zed aligns its corporate strategy to fit the corporate strategy of geographical diversification, the company will accrue some benefits. In this case, the company will improve and create a competitive advantage over its competitors in the Asian market. Additionally, this will serve as an improvement of the core competence of the entire business. This option may disadvantage the company greatly if it fails to give safety nets as hoped thereby affecting its business portfolio.

The sixth alternative at the disposal of Zed Company for the resolution of current logistical issues is for the company to pursue African market opportunities. This option is grounded on the fact that Africa presents an opportunity in the exploration and exploitation of minerals that have been undeveloped. Notably, there are positive signals of increased explorations and exploitation of minerals on the continent. Another advantage of this option is that it will further create extra market for Zed products. The demerit of this option is that the strategy is going to create same logistical issues as presently witnessed hence the status quo may still prevail.

The last option is for the company to consider combining and integrating the above options. The combination of the above alternatives may have a permanent solution to the logistical problems compounding the company. However, the adoption of such an alternative may not be met by Zed sufficiently given that it is medium-sized, and may lack the capability to implement the option to the later. This may also result in the portfolio failure.

Recommendation and implementation

Logistic chain, which incorporates both production and distribution, should be as efficient as possible to meet the challenging modern complexities of the ever-growing markets in the world today (Beukema, & Coenen, 2004). The distributive structure suppliers or materials and services should inform the adoption of logistic strategies. Therefore, it is recommended that the management of Zed should consider restructuring the logistic system comprehensively and develop an efficient one. The management should consider a total review of its suppliers in order to identify their strengths. Outsourcing should be adopted by the company in the manufacture and distribution of Q-10SD since it forms a significant percentage of the total sales of the company.

The management should also focus on level analysis of logistic chains with a view of analysing the dynamics of inventory issues, which seem to be lagging behind in the provision of orders on a timely basis. The company should then incorporate various mechanisms to ensure that the manufacturing process releases sufficient orders to meet customer orders. This shall be made possible through outsourcing of material to produce Q-10SD to meet increased inventory levels. The company may try to form a more established strategic alliance with one large supplier of products components. This will guarantee supply of components during additional demand period only.

It is vital for the management to acknowledge that the logistic supply chain is going to elongate with significant geographical diversification in Asia and probable entry into the African market. Therefore, the management should make considerable budgetary allocation to cater for increased transportation costs and inventory management. The company should also consider scaling of the manufacturing process and re-engineering of the core processes of the organization to remain competitive in the Asian market.

Conclusion

Zed has a wonderful opportunity to increase its sales volume owing to the large Asian market and the promising African market. The company need to review its current logistic system in order to realize its geographical diversification strategy efficiently. In this case, the company will be able to attain its objective in the production and distribution of finished products.

Reference List

Beukema, L & Coenen, H 2004, “Global logistic chains as a result of local processes: the case of orchids”, in L, Beukema and J, H, Carrillo (ed.) Globalism/Localism at Work (Research in the Sociology of Work, Emerald Group Publishing Limited, New York.

Business Management 2004, Public Relations Review, vol. 30, no. 5, pp. 535-536,

Byeong-Yun, C, & Byungjoo, P 2012, ‘Periodic Review Production Models with Variable Yield and Inventory Level Dependent Demand’, International Journal of Control & Automation, vol. 5, no. 2, pp. 51-64,

Kuan-Yu, H, & Tian-Sheng, C 2010, ‘An innovative automated storage and retrieval system for B2C e-commerce logistics’, International Journal Of Advanced Manufacturing Technology, vol. 48, no. 1-4, pp. 297-305,

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