ENEB Business School

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 BACKGROUND

CERAMICOSA SA is a Spanish company of which you are the logistics director. It is

dedicated to the manufacture of plates, tiles and various ceramic structures for
housing (walls, floors, countertops, etc.). It has its production and distribution
warehouse in La Vall d'Uixó (Castellón).

CERAMICOSA has experienced an exponential rise in sales due to new decorative

trends based on the use of ceramics, whose attributes are linked to elegance,
cleanliness and durability. In addition, the company is known for making high quality
ceramics, one of the best in the market, with totally original designs and engravings.
All this has caused the demand for their product to increase considerably in the last
few years.

The strategic director of the company has decided that it is time to export these new
decorative trends to various Western European countries, as she thinks that the
taste and fashion in aesthetic concepts are quite similar, thus ensuring a very good
reception. To this end, an agreement has been signed as exclusive suppliers of
Furniturest, a chain of luxury department stores dedicated exclusively to the sale of
accessories, furniture and home installations.

The main characteristic of Furniturest, which has salespoints throughout Europe, is

that it supplies the material to its customers in less than 24 hours after payment. This
forces CERAMICOSA to be very clear about the logistic processes to avoid stock
ruptures at times of peak demand, which would imply very important monetary fines
as a penalty, as stated in their agreement.

At this current time, the production is being distributed to three locations:

- Furniturest Stockhlom
- Furniturest Palermo
- Furniturest Viena

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We find that CERAMICOSA is entering a completely new export stage and it is very
conditioned by a restrictive exclusivity contract. For this reason, as logistics director,
you must develop a logistic plan oriented to the internationalization of your product
taking into account all the mentioned particularities.

DEVELOP
1. In the first place, focus on the Inventory stage of the logistics process.
Explain why an exhaustive inventory control is especially important in
your company.
Logistics, according to www.lapaas.com, is basically the process of transporting
goods (raw material or finished products) from one point to another. The two (2)
major functions of logistics are considered to be transportation and warehousing.
There are various phases in the logistics process as diagrammed below.

Distribution

Purchase
Shipping

Receiving

Manufacture

Storage

Stock

Figure 1- The Logistics Process

Inventory Management speaks to the process in the supply chain system that
focuses on moving goods to different locations in order to meet the requirements of
the customers. The goods moved are also known as inventory. It is important to
decide the amount of inventory to be stored.

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Inventory can be defined as the amount of stock/merchandise, controlling the
movements in and out of the company. Inventory can be raw materials, semi-
produced or finished products. Whatever the type of inventory, it is necessary to
maintain good control over it. Failure to do so will result in the lack of availability of
finished products which will ultimately prevent the company from satisfying its
customers. Inventory control is especially important in the case of Ceramicosa as
the company will be tied in a binding contract with Furniturest. The penalty for
breaching or not complying with this contract will be monetary fines and this will
negatively affect the profit margin of Ceramicosa. As such, Ceramicosa needs to
ensure that at all times there is enough inventory to ensure a continued supply to
Furniturest. Having an exhaustive inventory control will also boast customer
(Furniturest) satisfaction as well as ensure that the company is efficient in meeting
the needs of its customer (s).

Ceramicosa would reap the following benefits from practising good inventory
management:
 Minimizing storage costs
Ceramicosa could identify the most cost-efficient method for ordering
new raw materials/products by weighing the cost of storage versus the
cost of ordering its raw materials/products- a comparison of product
stock level with cash flow.
 Minimizing losses
Products made and not sold are considered losses to Ceramicosa as
money has already been spent to make the item but cant recoup that
money from the sale of the product. By properly managing the
inventory less money will be spent on producing items that are not
very marketable.
 Improvement of customer satisfaction
This will be achieved through the production of goods of a high
quality and ensuring that they are available in the quantities and
quality to satisfy the customers. Proper inventory control will ensure
that this happens.

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Propose actions to prevent disruption of the production process resulting
from poor inventory management.

Any form of disruption of the production process will not end well for Ceramicosa. As
such, there are certain actions that can be taken to mitigate against this. These
include but are not limited to:

1. Ascertain the delivery times of Ceramicosa’s suppliers from when the purchase
order is placed until the products reach the manufacturing facilities. This will allow
Ceramicosa to better plan based on the delivery and production times. The aim is to
always be in possession of the raw materials necessary for the production of
Ceramicosa’s products. It will also allow the company to calculate its safety
inventory which will be used in the event of unforeseen eventualities such as natural
disasters which affect delivery times.

2. Diversification of Supply Base- It is recommended that the company have

suppliers in different locations so that there will always be a supply of raw materials
even if there is a disruption in one location.

3. Ensure that no production is scheduled until the Bill of Materials (BOM) has
been fulfilled in its entirety. A BOM is a comprehensive inventory of the raw
materials, assemblies, subassemblies, parts and components, as well as the
quantities of each needed to manufacture a product. BOMs also include the
instructions for procuring and using these materials.

4. Ensure that Furniturest and Caeramcosa both agree on a consumption

forecast as well as the transit times to each of the three (3) Furniturest headquarters.

5. Conduct a supply chain vulnerability and use it to guide your inventory.

Conduct a risk analysis to identify the weakest points in the supply chains. This will
help the company to identify the areas where alternatives are necessary.
Assessment of potential environmental, social and political conditions that may affect
supply routes is also necessary. Once this is done, a stockpile of essential supplies

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that can be used through several months of disruption should be kept. This stockpile
can be finished goods, components or raw materials.

6. Maintain an accurate inventory system. Ensure that the physical inventory is

aligned with the virtual one to prevent a shortage that might slow or disrupt the
production process.

2. We know that for the correct exploitation of CERAMICOSA’s logistics

network it is necessary to emphasize on the distribution stage.
 What variables must be taken into account for a proper product
coordination? Briefly propose an action to ensure these variables.

 Propose also different actions that ensure a good management

towards the client and that, at the same time, make you more
competitive as a firm.
Distribution is one of the final stages of the logistics process. This is where
Ceramicosa will focus its efforts of the improvement of the process. To avoid
unnecessary costs it is important to ensure that this stage is properly managed.
During this period, the costs associated with the product will be very high for the
company. A lot of coordination is also required. Factors such as new customer
demands, the decrease in the cycles of production and the response time need to be
considered. Ceramicosa needs to keep the interest of the client and heart and
ensure that the client benefits from highest quality of deliverables and client
satisfaction. To ensure that this occurs some actions are necessary:
 Promotion of the the use of efficient communication channels between
Ceramicosa and Furniturest generally and especially at the three (3)
locations. The aim of this is to ascertain the specific needs of the client. This
will also have far reaching effects of becoming one the most responsive
suppliers for Furniturest.

 Promotion of transparency between both companies where the management

of both will be forthcoming in all issues related to the business relationship.

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  In addition to focusing on on-time delivery, also focus on customer service.
To ensure that this happens, train staff and provide a system of feedback
where Furniturest is free to express any small needs/issues before they
escalate.

 Aim to provide a product that is of the highest quality when compared to that
of the other suppliers of Furniturest.

3. Since delivery timings are so tight due to the commitment of Furniturest

with its customers, CERAMICOSA has decided to rent intermediate and/or final
warehouses to quickly supply the demand of its client.
 As a logistics director, do you consider this proposal correct?

As a logistics director, the above proposal makes sense once Ceramicosa ensures
that the intermediate or final warehouse that is rented is one that is aimed towards
being cost effective. The renting of the warehouse has the potential to ensure client
satisfaction and avoidance of the penalties for late delivery of the products. This will
be achieved through decreased delivery times and also the stockpiling of products
within the same country where it is to be delivered. However, this choice also has
the potential to erode the profit margins of the company.
This means that there has to be a delicate balance struck between losing money on
the rental of the warehouse and saving it by avoiding the penalties that will be
incurred if the deliveries are late.

Locate geographically the ideal spot for the warehouses taking into account
the location of each physical store (Stockholm, Palermo and Vienna) whilst
also considering that CERAMICOSA must be able to send the goods to any
point in those countries (Sweden, Italy and Austria), since Furniturest’s
customers can make purchases online.

Given the fact that deliveries must be done within twenty-four (24) hours, it is
necessary for the company to have warehouses located in each country where
Furniturest is located namely Stockholm, Palermo and Vienna.

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 Furniturest Stockholm: The warehouse will be located in the town centre of
Stockholm which is within two (2) minutes walking distance from Furniturest
Stockholm. This will make transportation to Furniturest easy and will also facilitate
customers and raw materials from Vienna or Spain.

Figure 2: Map showing the distance between Furniturest Stockholm and Stockholm town
centre.

Figure3: Maps showing the distance between Stockholm, Vienna and Spain

Furniturest Palermo: A warehouse can be located in Naples is a popular city in Italy

and also lies between Rome (the most popular city) and Palermo. This will allow
ease of transportation for raw materials.

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Figure 4: Map showing the distance between Palermo, Spain and Naples, Italy

Furniturest Vienna: A warehouse can be located in the city of Linz. The advantage
is this warehouse will be located centrally so that raw material or products can be
sent to the rest of the country. It can also serve as an intermediary for exports to
Sweden.

Figure 5: Map showing the distance between Vienna and Linz

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Propose a route from the central warehouse to the final customer, bearing in
mind that these new intermediate warehouses exist. Apply it to the three
scenarios/cities.

Spain to Italy
Shipments will be made from Spain with the added possibility of also receiving
shipments from Austria as well. The distance from the warehouse in Spain to the
one in Naples, Italy is 1856 kilometres and will take 2 hours 5 minutes via air
transportation and approximately 18 hours via roadway. Naples is a good central
location to the warehouse in Palmero and would enable the company to supply most
of Italy within three (3) to six (6) hours. The warehouse in Naples could also be used
to supply the location in Austria. The distance between Furniturest Palmero and the
warehouse in Naples is 715 kilometre and the journey would take the maximum time
of 9 hours and 39 minutes if travelling via roadway.

Figure 6: Map showing distance between Spain and Naples

Spain to Austria
Direct shipments would be made from Spain to Austria and there exists a possibility
of also receiving from Italy and Sweden. The Journey from the warehouse in Spain
to the one in Linz will take approximately 18 hours and 50 minutes via road and the
distance travelled is 1917 kilometres. This would allow supplies to be sent and
received from the other warehouses in Stockholm and Naples in a timely manner
which will save on costs and ultimately result in customer satisfaction.

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Figure 7: Map showing distance between Spain and Linz- Austria

Spain to Sweden
Direct shipments from the warehouse in Spain to the one in Stockholm, Sweden
would exceed the twenty-four (24) hour mark and as such would not be feasible. As a
result, this warehouse in Stockholm will have to be supplied from the warehouse in
Linz.

Figure 8: Map showing distance between Spain and Sweden

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As director of Cermamicosa, I would instead of having three (3) warehouses, suggest
one in a central location. This central location would have to be at the point where it
is practical and feasible to travel from Spain and deliver to Furniturest with little or no
difficulty. I would suggest locating the warehouse in Germany- Nuremberg to be
exact. The merchandise would be transported from Spain to Italy and from Italy to
Germany. The central warehouse would facilitate deliveries to and from all the
Furniturest locations and Ceramicosa in Spain.

Figure 9: Map showing proposed location of the central warehouse

4. Do you consider it appropriate to apply the Just in Time philosophy in

our new warehouses? Justify your answer.
The Just in Time (JIT) philosophy is a Japanese grown management philosophy that
has been applied since the early 1970s. JIT has been described in simple terms as
producing the necessary items, in the necessary quantity at the necessary time. JIT
attempts to minimize ordering costs and inventory holding costs while producing high

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quality products to meet the demands of the consumer. Based on the scenario
outlined as it relates to Ceramicosa and its relationship with Furniturest, I would
certainly not consider it appropriate to apply this philosophy in the new warehouses.
Although the Just in Time philosophy is aimed at eliminating or cutting production
costs with a means to increasing the profit margin, it will not have the desired effect
for Ceramicosa. It could work in a situation where the company had more control
over certain elements related to the production process.

Regarding the choice of Incoterms:

 Which do you consider more appropriate if we want our client to

be freed, as much as possible, from all management and
responsibility?
Incoterms refer to International Commerce Terms. They establish a set of
international rules for the interpretation of trade terms related to sales contracts.
These rules were established to prevent various interpretations of the trade terms by
different countries. Incoterms are especially useful for transactions that may be
considered as risky between buyers and sellers. The aim is to reduce possible legal
complications. Incoterms cover only contracts for the sale of goods and do not
regulate the form of payment by the buyer.

If the client is to be freed, as much as possible, from all management and

responsibility, Group D Incoterms would be considered. To be specific, Delivered
Duty Paid (DDP). This Incoterm includes any mode of transport and places the
maximum obligation onto the seller. This means that Ceramicosa would take all
responsibility for the product from the time it leaves the factory and is finally
delivered to the buyer. The buyer only takes responsibility for losses or damages
once the merchandise has been delivered.
39
Imagine that you have implemented a service for Furniturest to collect the
merchandise from our central warehouse, offering a 10% discount on the retail
price. What type of Incoterm will interest you most in this case?

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Ex Works (EXW) is the only Incoterm under Group E. Under EXW the only
requirements for the seller are to
 Provide the correct packaging for the
products/goods
 Leave the goods/products at the agreed upon
location at the date agreed upon by both parties.
It should be noted that in the scenario outlined, the seller is Ceramicosa and the
buyer is Furniturest. The seller is exempt from any responsibility associated with the
loading of the goods and the customs export formalities. Furniturest will have the
responsibility associated with:
 choice of the means of transport (air, sea, road or
rail)
 costs associated with transportation
 costs associated with any complaints related to the
product
This is recommended for companies that lack the necessary and/or adequate
infrastructure and personnel for the management of the most advanced logistics
operations. Ceramicosa, at this stage lacks this necessary infrastructure and
personnel so this would work best in their favoour. In the future when they gain
more experience it may not be necessary to apply this Incoterm.

The Incoterm is also suitable for making offers of sale at a lower price (as outlined in
the scenario- 10% discount on the retail price). This is possible as the cost
associated with this Incoterm is a bit more than the price of the product. Furniturest
will benefit from this arrangement as they will be able to choose their mode and
preferred transportation partner for the entire journey. They will also have a much
clearer understanding of the costs and as such will be able to calculate the full cost
of transportation and logistics. In addition, based on this additional information
Furniturest will be able to decide whether or not to clear customs using a broker.

5. Decide which route planning system is best suited for CERAMICOSA’s

activity.

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Route planning is a very important aspect of getting the goods to their final
destination. Choosing a good route planning system and sticking to it will work in
Ceramicosa’s advantage. Some of the advantages include reduction in mileage,
vehicles and overtime as well as a deduction in the time spent on transporting
raw materials and finished goods. Once these are achieved, the final result will
be customer satisfaction. It is suggested that GPRS/GPS tracking systems be
also used in order to better facilitate transportation. GPS refers to Global
Positioning System which is a software that transmits the location of vehicles into
which it is installed. GPS can determine vehicle location, direction and speed
from any place in the world that has internet access. The use of GPS will serve
to reduce costs and improve efficiency, increase productivity and ensure that the
drivers and supplier have a higher level of accountability. There is also added
benefits to the suppliers of the transportation as they stand to see a reduction of
fuel consumption and better management of their administrative costs. It should
be noted that these benefits will also be passed on to the end users- the
customers. Customers will benefit from reduced times and costs, lower rates and
also shorter order cycles.

Since orders need to be delivered within twenty-four (24) hours, a reliable GPS
system is necessary. GPs will inform Ceramicosa of the location of the
transportation fleet in real time as well as to ensure that there is compliance with
the chosen route. This will result in efficiency in time to deliver the products to
Furniturest who will in turn be able to fulfil their customers’ needs.
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Bibliography

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Additional Resources:
Notes from ENEB Supply Chain module

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