Chapter 1: Product characteristics

1.1. Introduction of the product offered to the market:

Bones are the frame of our bodies and they provide support, protection, and shape. Bones
protect our bodies from injury or disease and help keep both internal organs and muscles in place
so we stay healthy. However, it is estimated that about 27% of women and 10% of men aged 50
years and older have osteoporosis and other bone-related diseases. This issue has been an
annoyance for many middle-aged and elderly individuals in Vietnam, lowering their quality of
life considerably. To make matters worse, calcium, a substance that decides your bone health,
can not be produced naturally in the body but absorbed from food taken daily. Besides, it has
made it more difficult for the middle-aged and elderly as their ability to absorb from daily intake
deteriorates as time goes by.
Despite those facts, in Vietnam, there are now only a few legitimate firms and companies
that offer bone supplements or bone support meals in the market, most of which are novel to the
population. Understanding their pains as well as taking notice of the opportunity, our company
decided to introduce a new bone supplement called Bone+ made specifically for Vietnamese
people who need help with supporting their bones. The supplement's ability, which makes Bone+
stand out from its competitor in the line, is to help provide calcium to the body without
producing any side effects or issues, making it fully health-friendly for all the middle-aged and
elderly. In addition, Bone+ is integrated with a key component necessary for health, called
Glucosamine, compared to other products providing only calcium in Vietnam. This ingredient
has the effect of nourishing cartilage tissue, inhibiting enzymes that damage joint cartilage,
improving bone density and slowing down the aging process. Besides, the oral tablet contains
necessary minerals for the body in general and bones in particular, such as magnesium, zinc,
vitamin D, vitamin K, vitamins B1, B6 and folic acid that help to protect joint cartilage and
replenish lubricating fluid for joints.
Believing in the product’s potentials and the corporate’s abilities, our goal is to be the
number-one bone supplement in the Vietnam market and available at every Vietnamese home.

Product description:
Bone+ is offered 2 types. First, Bone+ is offered in capsules packaged in a glass bottle
with Bone+ labels. Second, Bone+ is offered in liquid medicine packaged in a glass bottle with
Bone+ labels.
Each type of Bone+ is offered in 3 sizes: (1) small size, which is equivalent to 30
capsules as for capsule bottles and 50ml as for liquid bottles; (2) medium, which is equivalent to
60 capsules as for capsule bottles and 100ml as for liquid bottles; (3) large, which is equivalent
to 90 capsules as for capsule bottles and 150ml as for liquid bottles; each of which is taken in 30
days, 60 days and 90 days respectively.
Product’s use: Bone+ contains processed calcium with other ingredients with sufficient
amounts supporting the absorption of calcium. Daily intake of Bone+ helps provide calcium to
the body without causing any side effects or health complications regardless of age and gender.
Besides, Glucosamine in the product helps to protect joint cartilage and replenish lubricant for
joints. This ingredient also works to support the treatment of bone and joint problems such as
knee osteoarthritis, osteoporosis, and spinal degeneration. Therefore, Bone+ is health-friendly
and suitable for people of all ages, even the young. This makes Bone+ stand out from its
competitors as most of the bone supplements in the market nowadays are only compatible with
certain types of body, which makes them less effective in the mass.

Bone+’s partners: (1) pharmaceutical wholesalers and retailers throughout Vietnam; (2)
Bone+ distribution centers, (3) Transportation firms; (4) Bottle and label factories; (5)
Information system building agencies; (6) Ingredient suppliers

1.2. Classifying product

Bone+ is classified into shopping products. Shopping products, which are directed to the
ultimate customer, are goods that customers are willing to seek and compare with others of their
type, then make purchase only after careful deliberation. Bone+ is a type of product belonging to
the medical care industry where people put a lot of effort into making the decision if they should
opt for a product or service or not since the purchase will either directly or indirectly affect their
health. They will compare and contrast numerous medical products or services to determine
which one is best for them physically and financially. In this case, the quality and customer
service of Bone+ will be the primary determinants of its selling power and customer loyalty.

1.3. Product life cycle

The product life cycle is the pathway of a product from the beginning of its birth to the
last phase of its death from sales revenue insight. The stages of the product life cycle are similar
to those of humans. As time passes, the product moves from infancy, grows, and reaches
maturity. Eventually, it will decline and die.
By plotting the revenue on the y-axis and the time on the x-axis, the product life cycle
curve of Bone+ is expected to be as in below.
 Figure 1.3.a. Bone+ life cycle
According to Figure 1.3.1, there are three distinct stages of the life cycle of a new drug.
The early stage is the research and development stage from the drug discovery up to its
launch to the market. The early stage involves the following: First, the new drug is submitted to
certain intensive clinical and preclinical tests; Second, the company invests money without
generating sales as the drug is not launched yet in the market; Third, the company starts the pre-
launch activities.
The middle stage is the period between its launch and the loss of market exclusivity.
During the middle stage, the drug is launched to the market, and the company starts making
profit. As soon as the product is introduced to the market, the company starts activities like
creating awareness, informing current and potential customers on the product. In the introduction
phase, the company does not need to set up a large network, high level of inventory or a big
transportation system. However, once it enters the growth phase, the goal is to achieve the largest
market share and maximize turnover. Therefore, the management has to focus on expanding
inventory, network and transportation as large as possible to meet customers’ growing demand.
When it is no longer feasible to grow, the product matures and the company focuses on
maintaining its market share. During the maturity phase, the manager needs to keep the logistics
system constant as well. When the market share and profits start to decline, the company
consolidates on the market segments gained and tries to minimize the expenses which the
company has to narrow down the logistics system.
The late stage is the period after the loss of market exclusivity (when generics can enter
the market). When the patent expires, companies seek defensive strategies to combat generic
competitors and retain market share.

1.4. The Pareto 80/20 principle and ABC classification.

 The Pareto principle also suggests that about 80% of the sales volume is indeed from
about 20% of the product catalog. This will affect the stock keeping units (SKU) of each and
every product offered by Bone+, which leads Bone+ to ABC classification. ABC ranks items on
demand and cost, and Bone+ managers group items into classes based on those criteria. The most
important stock keeping units (SKU), based on either sales volume or profitability, are “Class A”
items, the next-most important are “Class B” and the least important are “Class C”. This helps
the business leaders understand which products or services are most critical to the financial
success of their organization. The ABC classification is created as in below.

Product Product Monthly Cumulative Cumulative An ABC

Number Rank by Sales Percent of total Percent of total Classification
Sales sales items

SKU-60C 1 $87,000 71,8% 16,7% A

SKU-30C 2 $10,500 80,5% 33,33% B

SKU- 3 $5,250 84,8% 50%

50ml

SKU-90C 4 $8,400 91,7% 66,7% C

SKU- 5 $5,800 96,5% 83,3%

100ml

SKU- 6 $4,200 100% 100%

150ml

$121,150

SKU-30C: 30 capsules bottle; SKU-60C: 60 capsules bottle; SKU-90C: 90 capsules

bottle; SKU-50ml: 50ml bottle; SKU-100ml: 100ml bottle; SKU-150ml: 150ml bottle
 Figure 1.4.a. ABC classification of Bone+

The ABC classification is created based on sales forecast and pricing strategies together
with Bone+’s sales and marketing strategies. The table indicates that Class A includes the 60-
capsule bottle, which accounts for 71,8% of total sales. Class B includes the 30-capsule bottle
and the 50ml liquid bottle, which accounts for 13% of total sales. Class C includes the 90-
capsule bottle, the 100ml liquid bottle, and the 150ml liquid bottle, all of which account for
15,2% of total sales.
The table suggests that to better control working capital costs, Bone+ inventory managers
may increase inventory optimization by using its precious warehouse space to adequately stock
60-capsule bottles and maintain lower stock levels for goods included in Class B or C items.
Moreover, Bone+ managers should monitor and collect data about products during putting them
on sale so that the managers can increase the accuracy of sales forecasting. This information can
be used to set inventory levels and prices to increase overall revenue for the company. Since
Bone+ earns over 71% of its revenue on Class A items, it also makes sense to negotiate better
terms with its suppliers for those items. Furthermore, by carrying the correct proportion of stock
based on A, B or C classes, Bone+ can reduce the inventory carrying costs that come with
holding excess inventory and determine if it is time to consolidate suppliers or shift to a single
source to reduce carrying costs and simplify its supply chain operations.

Suppose that a certain warehouse is to store a limited number of products. The same
general relationship is expected to hold, that is, X = 0,17 and Y = 0,72 or 17% of the items result
in 72% of sales. 
 X (1−Y )
Solving equation: A= , we have A = 0,087.
Y −X
Expect that the turnover ratio (that is, annual sales/ average inventory) for A items is 7 to 1, for B
items 5 to 1, and for C items 3 to 1. The annual sales through the warehouse are forecast to be
$1.5 million, then we need to calculate the inventory investment in the warehouse.
The remaining items are ranked according to their relative sales level, highest to lowest. The
cumulative item proportion is determined by 1/4 for the first item, 2/4 for the second, 3/4 for the
third item, and 4/4 for the fourth item.

Item Cumulative item Cumulative Turnover Average

No. proportion (X) sales (Y) Projected ratio Inventory
item sales

A 1 0,25 1,209,570 1,209,570 7

$1,209,570 172,796

B 2 0,5 1,388,842 179,272 5

$1,388,842 277,768

C 3 0,75 1,461,022 72,180 3

4 1.00 1,500,000 38,978 3

111,158 37,053

$1,500,000 $487,617

1.5. Product characteristics

The Bone+ is a product with risk characteristics due to 2 main reasons, which are perishability
and tendency to be broken. First, refer to the perishability feature, Bone+ requires high storage
conditions with strict procedures about temperature or an appropriate place that fits the
temperature range. For example, Bone+ capsules and liquid medicine have to be kept in an
airtight container in a cool place and avoid direct exposure to the sun. This is because when the
product is stored beyond the temperature range (15 - 25 C degree), it can lose its effectiveness
and may change drug form, resulting in dangerous substances for users. Second, in terms of the
tendency to be broken, the Bone+ bottle is made of glass and this type of packaging can present
risks in advance during the drug manufacturing stages or in transit.

To address the problems stemming from these features, it is essential to allocate larger resources
to logistics systems, so Bone+ products can minimize potential risks and be protected in a better
way. With the storage stage, because the medicine is prone to be prehisable, careful
consideration must be taken in handling such as spending more on facilities (medical cold
storage, dehumidifier system, high-density stainless steel racking). Regarding the transport stage,
suitable packaging materials and special-purpose vehicles can be invested to ensure that the glass
bottles are not broken during transportation. In general, investment on logistics systems can be
considered as an optimum solution although these particular treatments make the total costs
(including storage and transport cost) increase correspondingly like the graph below.

1.6. Product packaging

Bone+ is offered in capsules and liquid medicine. In the factory, after Bone+ capsules or
solutions are produced, they will be kept in glass bottles and packed in cardboard. As for the
liquid medicine, there is a small cup attached to the lid to support solution intake. Before the
medicine consignment is shipped out from the factory, it will be packed and carefully checked by
the workers to make sure that little damage is made during shipment. When the consignment
arrives at wholesalers’ and retailers’ locations, it will be unloaded and again packed in
shockproof packing bags before being shipped out to end-users.

1.7. Product pricing

Contracts involving international transportation often contain abbreviated trade terms that
describe matters such as the time and place of delivery, payment, when the risk of loss shifts
from the seller to the buyer, and who pays the costs of freight and insurance. The majority of
Bone+'s customers will be wholesalers and retailers. They will receive the terms of sale as
follows: Terms of sale: F.O.B destination, Freight collect. This means that the title passes to the
buyer and all freight charges are paid by the buyer, who are the wholesalers and retailers. In this
case, the buyer will be responsible for almost all of the transportation regardless of situations that
arose along the way. 
 Chapter 2: Logistics customer services
2.1. Types of logistics customer service
2.1.1. Pre Transaction
This phase pre-transaction is more related to policy for defining the service level and
related activities in qualitative and quantitative terms.
Written statement of policy: This will indicate the service standards of the firm. Bone+
makes a policy commitment to deliver the goods to its customer within 5 to 10 days of the
placement of order (only for orders under 1,000 products) if the customer agrees to use Bone+
transport services with additional fees. Further, Bone+ commits to refund 5-10% of the order
value at the next time of placing orders, in case the goods reach the client's destination after the
stipulated delivery period. This compensation will not take effect if the delay of delivery is
caused by majeure such as natural disasters, wars or pandemics. The four main pre-transaction
elements are as follows:
Statement in hands of customers: A written statement of customer policy of Bone+ in the
hands of the customer would help him or her to know what to expect from the firm. It also helps
to safeguard against unreasonable expectations and demands from the customer. Also, it should
provide the customer information regarding how to respond if expected service levels are not
provided by the firm.
Organizational structure: For implementing the policy directives on customer service,
Bone+ will formalize the porting structure, delegate authority, and allocate responsibility. The
contact person’s name and contact number need to be communicated to the customers for
information on order status, dispatch details, warranty claims, and so forth. The contact person of
Bone+ is to be delegated with full authority to make a decision on customer services within his
domain and is made accountable for the action he is taking.
System flexibility: Bone+ has flexibility and contingency plans built into it so that it can
successfully respond to unforeseen events such as labor strikes, shortage of materials, and natural
calamities. To do this, at least one account will be set up to take charge of each bulk order placed
by customers or each contract with clients. This account takes charge of managing the order from
the time it is placed until it is completed.
Technical and management service: Bone+ shall be able to provide technical services
such as installation, testing, commissioning, and training to the customer. Also, Bone+ will help
the customers in merchandising, inventory management, and ordering (like management
services). These services will be provided based on a specified fee set by the company.
2.1.2. Transaction
Stock out level: When stock out occurs, Bone+ will offer the substitute to the customer,
or ship the item from another location or expedite the shipment as soon as the out of a stock item
is available.
Order information availability: Bone+ will provide their customers with access to the
type of information they need related to their order. This includes information on inventory
status, expected or actual shipping date, and backorder status.
 System accuracy: Bone+ will provide a wide variety of data to be made viable quickly
and the information about order status and stock levels to be accurate. The system should be able
to pay a high level of attention to continuing problems and take corrective action.
Consistency of order cycle: The order cycle is the total time from customer initiation of
the order through receipt of the product or service by the customer. Elements of the order cycle
include placing the order entry, order processing, order processing, order picking and packaging
for shipping, transit time, and the actual delivery process. Bone+ will inform its customers about
the consistency of delivery lead time rather than with absolute lead time since in today’s time-
based competition, reducing lead time has received greater attention.
Special handling of shipments: some orders, which cannot be managed through the
normal delivery system, require special handling. Bone+ will decide if these items have special
shipping requirements or not and then expedite if necessary to meet the delivery schedule of the
customer. This is necessary because the costs of such shipments are considerably higher than
standard shipments but the cost of a lost customer could be still higher.
Transhipment: an information system will be provided to track the shipping products
between various distribution locations to avoid stock-outs.
Order convenience: Order convenience refers to how easy it is for a customer to place an
order. Order related problems such as confusing formats, non-standard terms or long waiting
time on the telephone, etc. cause dissatisfaction to the customers. Such problems should be
monitored and identified by talking directly to customers.
Product substitution: When the product ordered by the customer is not available, it is
replaced by a different size of the same item or a different product, which will perform just as
well as better.
2.1.3. Post transaction
Product tracking: Bone+ will track the product in transit and recall it if it is defective or
potentially dangerous.
Customer complaints, claims and returns: An accurate online information system is
developed by an outsource paid by Bone+ to resolve customer complaints by processing the data
of the customer and monitoring trends and providing the customer with the most current
information viable. Customers return defective goods, which go through the logistics process in
reverse and hence referred to as reverse logistics.
Warranty: Before the goods are delivered to the customers, instructions to preserve the
goods must be given to them. As for Bone+ capsules and liquid medicine should be stored in an
airtight container in a cool place and protected from light. They should not be stored outside of
their original packaging as that is where they are best designed to resist moisture. Avoiding
strong impact when handling the goods is also necessary because the glass jars are fragile. If any
glass bottle is broken, it must not be sold to end-users causing them to become ineffective or
poisonous in some cases, which makes it no longer suitable for use.
After the delivery of the goods is complete, if any false or damaged products caused by
the production process is detected, Bone+ will take full responsibility of the problem and provide
reasonable compensation in accordance with the contract signed by both relevant parties.
2.2. Most important customer service elements to Bone+:
Logistics customer service is the critical factor for the office systems as well as plastic
and furniture factories. Factors such as high fill rate, frequent delivery, detailed inventory
visibility, estimated shipping date, and expected delivery time from the time of order placement
and order received are very important to the retail customers.
In the case of Bone+, with two main customers including wholesalers and retailers, there
are two most critical customer service elements. The first factor is on-time delivery. It measures
delivery performance and supply chain efficiency by Bone+, moreover , meeting their sales order
demand plays an important role in maintaining and fostering customer satisfaction as well as
retention. The second one - order fill rate is also considered as a key factor when it comes to
proper supply chain and operations management. The fill rate indicates how well Bone+ was
able to fill the orders from the available inventory rather than manufacturing them. This shows
that inventory management is in sync with demand and is able to fulfill it as soon as order
arrives.

2.3. Order cycle time

Here is a customer order cycle:
(1) A customer (wholesalers and retailers) will place an order and pre-transaction will
take a day. After the transaction is made and the contract is signed, delivery time will be
determined, which may take from 5 to 10 days.
(2) Backorder items which are glass jars, small cups attached to glass jars, boxes and
labels are filled up to their maximum numbers at the factories on a daily basis to decrease any
delays in the supply chain.
(3) The production line serving the order will start as soon as the contract is submitted to
Bone+. The maximum time of production is 3 days. Within this day, the transporting department
will make sure the truck is ready right the moment the order is ready to be shipped out.
(4) Once the order is out for shipment, Bone+ will help track the order. It usually takes 2
to 6 days to ship within Vietnam. If any complications happen during shipment, Bone+ will not
take responsibility for it, instead Bone+ will assist by discounts when the customer reorders or
connect the customers with the fastest transport firms to have the order re-shipped as soon as
possible.
(5) The cycle ends when the order is shipped to the arranged destination.

2.4. Optimum service level

The general feeling in the company was that a 0.1 percent change in the gross revenue
would occur for each 1 percent change in the service level. The trading margin was $1.5 per item
with annual sales through the warehouse of 55,000 items. The standard cost per case was $12,
and the annual inventory carrying cost was estimated at 25 percent. The replenishment lead time
was one week with average weekly sale of 1,104 cases and a standard deviation of 313 cases.
 The optimum services is found at the point where the change in
revenue equals the change in costs, that is ∆R = ∆C. Because the sales
response is constant for all levels of service, the change in revenue
is found by:
∆R = trading margin * sales response * annual sales
= 1.5*0,001*55,000
= 82.5
And this change in safety stock is given by:
∆C = annual carrying cost * standard product cost * ∆z *
demand standard deviation for order cycle
= 0.25*12*313*∆z
= 939*∆z
For each ∆z. This change in safety stock costs for various values
for ∆z are given in the following tabulation.

Change in service level (SL), Change in z (∆z) Change in safety

% stock cost ∆C
87-86 0.045 42.255
88-87 0.045 42.255
89-88 0.05 46.95
90-89 0.05 46.95
91-90 0.06 56.34
92-91 0.07 65.73
93-92 0.07 65.73
94-93 0.07 65.73
95-94 0.10 93.9
96-95 0.10 93.9
97-96 0.13 122.07
98-97 0.17 157.63
99-98 0.28 262.92
 Figure 2.4. Setting the Service Level (SL)
Conclusion: The optimum service level (SL*) is 93 percent. This
is the point where the ∆R and ∆C curves intersect

CHAPTER 3: Information system management

3.1. Order processing.
Order processing is represented by a number of the activities included in the customer
order cycle. Specifically, they include (1) order preparation, (2) order transmittal, (3) order entry,
(4) order filling, and (5) order status reporting. The time required to complete each activity
depends on the type of ordering involved. Order processing for a retail sale will likely be
different from that of an industrial sale.
 Order Preparation refers to the activities of gathering the information needed about the
products or services desired and formally requesting the products to be purchased. Bone+ will
use the barcode scanning to monitor all products shipped out because it speeds order preparation
by electronically gathering information about the requested item and presenting it to a computer
for further processing. Some industrial purchase orders are generated directly by the company's
computer, often in response to depleted inventory levels. By connecting buyer and seller
computers through electronic data interchange (EDI) technology, paperless transactions are
accomplished that lower order preparation costs and reduce order replenishment times.
Order Transmittal is the next sequential activity of the order processing cycle. There are
two fundamental ways in which order transmission is accomplished: manually and electronically.
Order Entry refers to a variety of tasks that take place prior to the actual filling of an
order. These include (1) checking the accuracy of the order information such as item description,
quantity, and price; (2) checking the availability of the re- quested items; (3) preparing back
order or order cancelling documentation, if necessary; (4) checking the customer's credit status;
(5) transcribing the order information as necessary; and (6) billing.
Order Filling represented by the physical activities required to (1) acquire the items
through stock retrieval, production, or purchasing; (2) pack the items for shipment; (3) schedule
the shipment for delivery; and (4) prepare the shipping documentation. A number of these
activities may take place in parallel with those of order entry, thus compressing processing time.
Order Status Reporting: This final order-processing activity assures that good customer
service is provided by keeping the customer informed of any delays in order processing or
delivery of the order. Specifically, this includes (1) tracing and tracking the order throughout the
entire order cycle and (2) communicating with the customer as to where the order may be in the
order cycle and when it may be delivered.

3.2. Factors affecting order- processing time.

( giải thích rõ và bổ sung: áp vào sản phẩm của mình thì như thế nào. Ví dụ mình sẽ
ưu tiên sản xuất đơn hàng lớn trước rồi đến nhỏ lẻ, tuỳ thuộc vào việc căn chỉnh thời gian
giao hàng và đảm bảo thời gian giao hàng)
Processing Priorities: Bone+ will prioritize their customer list as a way of allocating
limited resources of time, capacity, and effort to the more profitable orders. In doing so, Bone+
will alter the order-processing times. High-priority orders may be given preferential processing,
while low-priority orders may be held for later processing. High-priority orders are referred to as
orders having to be shipped out the soonest and low-priority orders are referred to as orders
having to be shipped out the latest. In other cases, low-priority and high-priority orders may be
processed simultaneously if there is sufficient production capacity. For example, if there are a
700-bottle order and a 300-bottle order placed at the same time while the capacity of a factory is
1000 bottles at a time, these two orders can be processed together which makes one of the two
orders be produced prior to its original schedule.
 Order-Filling Accuracy: Being able to complete the order-processing cycle without
introducing error into the customer's order request is likely to minimize processing time. It is
probable that some errors will occur, but their numbers should be carefully controlled if order-
processing time is a prime consideration in the company's operation.
Order Batching: Collecting orders into groups to batch process them may reduce
processing costs. On the other hand, holding orders until the batch size is realized will likely add
to processing time, especially for those orders entering the batch first.
Shipment Consolidation: Much like order batching, orders may be held to create an
economical shipment size. Consolidating several small orders to build a larger shipping volume
reduces transportation costs. Processing time may be increased, so that transportation cost may
be decreased.

3.3. Logistics information system

In terms of wholesalers and retailers, in order to maximize the work flow, Bone+ creates
an information system which supports the production line as in below.

Table 3.1.1.a. Bone+ Information system of order processing for wholesalers and retailers
(1) Customers first place their orders with the customer service department. The customer
service department then receives sufficient information to send it to the other departments.
At the same time, the material inventory control department is always on-job in order to
make sure materials are always ready for instant production. If materials have been delivered to
the production line and the material stock is not full, the material inventory control department
needs to get in touch with the suppliers for more materials as soon as possible. This requires
close and constant communication with the suppliers and the material receiving stocks.
 (2) Necessary information about the orders will be given to the order processing and
inventory control department. Here, they will decide if the orders can be processed or not and for
how long. If the orders meet the requirements of both Bone+ and its customers, the order
processing and inventory control department will inform the customer service department to
process the contract with the customers. This process may take a day.
(3) Once the orders are set, the information will be delivered to the production planning,
scheduling and control department to start processing them. The department must make sure that
the order processing does not coincide with the others and schedule the process in order to
maximize the production chain effectiveness. Since there may be a lot of other orders being
processed at a time, it may take a day for the information to arrive at its next destination.
(4) The orders are now checked by the material inventory control so that the production
chain is sufficient and qualified for manufacturing.
(5) Once the examination is done, all information will be sent back to the production
planning, scheduling and control department. The production has now started, accordingly, the
department will take charge of controlling all the manufacturing phases. The manufacturing may
take up to 3 days to be processed.
(6) Next, when the orders are done, they will be sent to the quality control department to
make sure that there is no deficiency.
(7) Any deficient or damaged product will be sent back to the production planning,
scheduling and control department.
(8) The finished orders will then be delivered to the order processing department for final
checks.
(9) The orders will be sent to the distribution and stock centers where they will be
packaged and updated on a tracking system. The orders are now ready to be shipped out.
(10) The orders are shipped out to the destination that the customers have decided
previously. The time of delivery may vary depending on the destination chosen. The customer
service department will work continuously to update the status of the freight with the customers.
 Chapter 4: Transportation management

4.1. Mode/service selection

The average transit time for rail shipments is T = 7 days. At each stocking point, there is
an average of 700000 units of luggage having an average value of C = $3 per unit. Inventory
carrying costs are I = 25 percent per year.
The company wishes to select the mode of transportation that will minimize total costs. It
is estimated that for every day that transit time can be reduced from the current 7 days, average
inventory levels can be reduced by 1 percent, which represents a reduction in safety stock. There
are D = 55,000 units sold per year out of the warehouse. The company can use the following
transport services:

Transport Rate Door-to-door transit No. of shipments

Shipment size
service ($/unit) time (days) per year
Rail 0.01 7 5 40,000
Truck 0.03 4 40 20,000
Air 0.5 1 15 12,000

Accordingly, we can produce transport choice evaluation for the company

Method of Modal choice
Cost type computatio
Rail Truck Air
n
Transportation R*D (0.01)(55,000) = 550 (0.03)(55,000) = 1,650 (0.5)(55,000) = 27,500
In-transit ICDT/365 (0.25)(3)(55,000)(7)/ (0.25)(3)(55,000)(4)/365= (0.25)(3)(55,000)(1)/365
inventory 365= 791 452 = 113
Plant ICQ/2 (0.25)(12)(40,000)/2= (0.25)(12)(20,000)/2= 30,000 (0.25)(12)(12,000)/2=
inventory 60,000 18,000
Field IC’Q/2 (0.25)(12.01)(40,000)/ (0.25)(12.03)(20,000)/2= (0.25)(12.5)(12,000)/2=
inventory 2= 60,050 30,075 18,750
Total 121,391 62,177 64,363

D = Annual demand
I = Carrying cost(%/yr)
C = product value at plant
C’ = product value at warehouse (C+R)
T = time in transit
Q = shipment size
Conclusion: Truck is the cheapest means of transport as for Bone+ system

4.2. Vehicle routing

 We must find the distance traveled in the least amount of time assuming that road costs =
0
Let’s start with the figure as in below:

All link times are in minutes

Then, we have a tabulation of computational steps for the shortest route method

Step Solved nodes Its closet Total cost nth Its Its last
directly connected involved nearest minimum connection
connected to unsolved node cost
unsolved node
nodes

1 A B 82 B 82 AB*

2 A C 115 C 115 AC
B C 82+74=156

3 A D 199 E 168 BE*

B E 82+86=168
 C F 115+56=171

4 A D 199 F 171 CF
C F 171
E G 168+78=246

5 A D 199 D 198 CD
C D 115+83=198
E G 246
F H 211

6 D K 198+71=269 H 211 FH
E G 246
F H 211

7 D K 269 G 246 EG*

E G 246
H K 211+74=285

8 D K 269 K 269 DK
G I 246+116=362
H K 282

9 K I 269+94=363 I 362 GI*

G I 362

⇨ The most reasonable travel distance is A => B => E => G => I with a total time of
362 minute

Chapter 5: Inventory management

5.1. Inventory Objectives

5.1.1. Product Availability

Bone+ receives an order for the capsule supplement and the liquid supplement. From a
sampling of orders over a period of time, the items appear on orders in three different
combinations with frequencies as noted in table below. Also from the company’s historical
records, the probability of having each item in stock is SL1 = 0,95 ; SL2 = 0,90. As the
calculation in the table below shows, the WAFR is 0,897. There will be about one order of ten
where the company cannot supply all items at the time of the customer request.

(1) (2)

Item combination on Order Frequency of order Probability of Filling Maginal value

A 0,3 0,95 0,285

B 0,3 0,9 0,27

A, B 0,4 (0,95)(0,9) = 0,855 0,342

1,0 0,897

- Bảng trên là thuộc Product Availability (chú thích A, B là gì)

- Còn thiếu mục Relevant cost: phần này cậu chỉ cần chỉ nêu lí thuyết như trong sách và áp
vào sản phẩm Thuốc của mình thui. Vì phần này quan trọng và cần phải có nên c liệt kê
giúp t nha

A: capsule
B: liquid

5.1.2. Relevant Costs

There are also some relevant costs regarding inventory.
Procurement costs: When a stock replenishment order is placed, Bone+ will have to pay
for the incurring cost that are related to the processing, setup, transmitting, handling, and
purchase of the order. More specifically, procurement costs at Bone+ includes the manufacturing
cost of the product for six order sizes (30 capsules bottle; 60 capsules bottle; 90 capsules bottle;
50ml bottle; 100ml bottle; 150ml bottle); the cost for setting up the production process; the cost
of processing an order through the customer service and order processing and inventory control
departments; the cost of transmitting the order to the supply point, usually by mail or electronic
means; the cost of transporting the order when transportation charges are not included in the
price of the purchased goods; and the cost of materials handling or processing of the goods at the
receiving point.
Carrying costs: (1) Space costs are charges made for the use of the cubic footage inside
the storage building. As for Bone+, the space is privately owned or contracted, therefore, the
space costs are determined by allocating space-related operating costs including heat and light, as
well as fixed costs including building and storage equipment costs on a volume-stored basis; (2)
Capital costs at Bone+ includes the purchase of fixed assets such as the building of the two
factories, one warehouse, and 4 distribution centers and business equipment, upgrades to existing
facilities, and the acquisition of intangible assets, such as patent and so on; (3) Inventory service
costs at Bone+ includes insurance and taxes, which are also a part of inventory carrying costs
because their level roughly depends on the amount of inventory on hand. (4) Inventory costs at
Bone+ is associated with deterioration, shrinkage (theft), damage, or obsolescence make up the
final category of carrying costs.
Out-of-stock costs: includes lost sales costs and back order costs. A lost sales cost occurs
when the customer, faced with an out - of - stock situation, chooses to withdraw his or her
request for the product. The cost is the profit that would have been made on this particular sale
and may also include an additional cost for the negative effect that the stockout may have on
future sales. A back order cost occurs when a customer will wait for his or her order to be filled
so that the sale is not lost, only delayed. Back orders can create additional clerical and sales costs
for order processing, and additional transportation and handling costs when such orders are not
filled through the normal distribution channel.

5.2. Pull inventory control

Pull inventory control is suitable to Bone+ as Bone+ is medicine and is only distributed
to retail suppliers. Moreover, production only begins upon orders. For a particular part, the
annual demand is expected to be 55,000 units. Procurement costs are 5$, carrying costs are 25%
per year, and the part is valued in inventory at 3$ each.
I= 25% carrying costs as a per off items value, %/year
D= 55,000 annual demand for the item in inventory, units
C= 3, value of the item carried in inventory, dollars/unit
S= 5, procurement cost, dollars/unit
Number working day per year = 300
D: demand rate, in time units
LT: average lead time, in time units = 3 working days

Q*= √ ❑= √ ❑= 856 units

Q∗¿ 856
T* = D ¿ = 55,000 = 0.016 year or 0.016(years) x 52(weeks per year) = 0.8 week
D 55,000
N* = Q∗¿ ¿ = 856 = 64
D 55,000
d = Number working day per year = 300 = 183 units

ROP = d x LT = 183 x 3 = 549 units

Therefore, the optimal order quantity is 856 units and the reorder point quantity is 549 units.
 Chapter 6: Network/location management

6.1. Facilities:
Bone+ will set up a supply chain network efficient enough to meet the needs of
production time and efficiency.
 Figure 6.1.a. Bone+’s supply chain network design
Production sites: factories
Distribution sites: warehouse and distribution centers.

6.2. Network design decisions

6.2.1 Facility role:
For production facilities, Bone+ adopts a product-focused approach with dedicated
capacity which has high volume but low variety products. This method can be used for only a
single type of product but is much easier for production planning control, higher equipment
utilization, and lower variable cost per unit. The process of Bone+ supplement in the factories
can be broken down into a range of unit operations, such as blending, granulation, milling,
coating, tablet pressing, filling, and other steps (if necessary).
For distribution facilities, Bone+ uses the storage facilities method, a process in which
supply system managers play a key role. In terms of a warehouse, it requires a room fitted with
suitable temperature, having some specific equipment such as shelves, refrigerators, and a secure
cupboard or safe for controlled drugs. There are six fundamental stages in the warehouse process
comprising receiving, put away, storage, picking, packing, and shipping. While the role of a
warehouse is to store products efficiently, the role of distribution centers is to efficiently meet
customer requirements. Here is what a typical distribution center process looks like: (1)
Receiving and storing inventory, such as warehouse receiving and then storing inventory refers
to delivering, unloading, and optimizing storage space in one or more distribution center
locations; (2) Picking and packing involves making a picking list that includes the items ordered,
quantity, and the location of each product in the distribution center, then packing them and
affixing a shipping label; (3) Inventory restocking through the use of inventory management
software and other inventory automation tools;(4) Return management by implementing a
system to process returns and have staff quickly restock items on shelves.

6.2.2 Facility number and location

There are two factories located in Bac Ninh in the North and Can Tho in the South of
Vietnam. These places are close to suppliers so that the business may reduce the delivery costs of
materials as well as ensure a constant supply for manufacturing. The 4 distribution centers are
situated in Hanoi, Hai Phong, Da Nang, and Ho Chi Minh City which are among the largest
economies in Vietnam. The distribution centers and factories are also nearby to reduce the
overall transportation costs. The warehouse is set up in Da Nang. This is because Da Nang is the
nearest and most cost-effective spot to place a warehouse since three out of four largest
distribution centers stand there.
6.2.3 Capacity allocation
Bone+ factory should be able to produce and ship out 1,000 products per working day.
The capacity of the warehouse is 3,000 products which are always ready to be delivered within
the day.
6.2.4 Market and supply allocation
There are 4 largest economies focused on by Bone+ which are Hanoi, Hai Phong, Da
Nang, and Ho Chi Minh City. In regards, each city will place one distribution center and two
factories will be located in the North and the South of Vietnam. Thus, locating a warehouse in
Da Nang can optimize the supply source from many regions ranging from North to South. In
particular, Da Nang is the bridge between the South and North of Vietnam which makes the
exchange and transportation of goods between warehouses become easier and more convenient.

6.3. Factors influencing network design decisions

There are 3 factors influencing network design decisions
Human resources factors: All facilities are located in large economies from the north to
the south of Vietnam and have their young and dynamic workforce. Furthermore, these locations
also have high population density, which ensure the employment supply sources are always
available.
Customer response time and local presence: In order to provide efficient logistics
customer service, the time of production and delivery needs to be as short as possible. By placing
the network as described, Bone+ can make sure that they are close to their suppliers as well as
wholesalers and retailers, which helps shorten the time among processes and better adjust to
changes from the customers.
Proximity to suppliers: In order to ensure material supply to ensure the time of
production, Bone+ places their factory near a big trading metropolis. This helps reduce the costs
spent on material shipment and risks of ingredient damage.
Infrastructure: All facilities of Bone+ such as a warehouse, two factories, and four
distribution centers have the availability of good infrastructure in its own location. Ha Noi, Hai
Phong, Bac Ninh, Da Nang, Ho Chi Minh and others are the places which have key
infrastructure elements during network design such as proximity to airports, seaports, rail
service, and highway access; and the availability of advanced manufacturing technologies.

Network management

+Cơ sở vật chất : (2 loại)

Nhận xét: Đặt nhiều cơ sở vật chất, TĂNG responsiveness / GIẢM efficiency và ngược lại

+Quyết định thiết kế chuỗi cung ứng (vai trò gì, đặt ở đâu,...)

+Các nhân tố ảnh hưởng đến thiết kế mạng lưới

Chapter 7: Supply chain

(lựa chọn địa điểm đặt warehouse bằng COG)
Bone+ with its two plants supplying the warehouse, which, in turn, supplies four demand
centers. 2 plants are located in Bac Ninh and Can Tho. 4 demand centers are located in Ha Noi,
Ho Chi Minh, Da Nang, Hai Phong since these are the largest economic centers in Vietnam. A
grid overlay on a highway map is used as a convenience in establishing the relative location of
each point.
1 unit ~ 200km
Coordinate points, volumes, and transportation rates are as in below:
 Points Product Total volume Transportation rate Coordinates
Location (i) moving Vi (cwt.) (VND/cwt./km)
Xi Yi

Bac Ninh 1-P1 A 60 0.02 6,2 13,6

Can Tho 2-P2 B 40 0.01 5,7 1,6

Ha Noi 3-M1 A&B 30 0,02 5,8 13

Hai Phong 4-M2 A&B 20 0.02 6,7 12,6

Ho Chi Minh 5-M3 A&B 36 0.02 6,5 2,5

Da Nang 6-M4 A&B 14 0.16 8,2 7,8

We have a tabular form, that is:

i Xi Yi Vi Ri V i Ri Vi Ri Xi Vi Ri Yi

1 6,2 13,6 60 0.02 1,2 7,44 16,32

2 5,7 1,6 40 0.01 0,4 2,28 0,64

3 5,8 13 30 0,02 0,6 3,48 7,8

4 6,7 12,6 20 0.02 0,4 2,68 5,04

5 6,5 2,5 36 0.02 0,72 4,68 1,8

6 8,2 7,8 14 0.16 2,24 18,368 17,472

Total 5,56 38,928 49,072

Now, we have:
X = 38.928/5.56 = 7
And Ӯ = 49.072/5.56 = 8.83

i Xi Yi Vi Ri di Cost = ViRidi

1 6,2 13,6 60 0,02 967,3 1160,76

 2 5,7 1,6 40 0,01 1469,2 587,68

3 5,8 13 30 0,02 867,8 520,68

4 6,7 12,6 20 0,02 756,4 302,56

5 6,5 2,5 36 0,02 1269,9 914,328

6 8,2 7,8 14 0,16 316,3 708,512

Total transportation cost 4194,52

i (1) (2) (3) (4) (5) (6) (7)

Vi Ri Vi Ri Xi Vi Ri Yi di ViRi/di ViRiXi/di ViRiYi/di

1 1,2 7,44 16,32 513,34 0,0023 0,0145 0,0318

2 0,4 2,28 0,64 722,44 0,0006 0,0032 0,0009

3 0,6 3,48 7,8 515,85 0,0012 0,0067 0,0151

4 0,4 2,68 5,04 586,89 0,0007 0,0046 0,0086

5 0,72 4,68 1,8 168,82 0,0043 0,0277 0,0107

6 2,24 18,368 17,472 494,78 0,0045 0,0371 0,0353

Total 0,0135 0,0938 0,1024

The revised location coordinate points can be calculated as

X = 0.0938/0.0135 = 6.95
And Ӯ = 0.1024/0.0135 = 7.59
With a total cost of $4,194.52

Using the computer software module in LOGWARE known as COG, we can complete
100 iterations of this procedure. These results are given in the table.
Interation X coordinate Y coordinate Total cost, $
0 7.001 8.826 4,193.89 <= Center of gravity
1 7.568 8.629 4,073.14
2 7.749 8.351 4,013.42
3 7.878 8.157 3,973.63
4 7.975 8.032 3,947.72
5 8.045 7.952 3,930.92
6 8.095 7.900 3,919.95
7 8.128 7.866 3,912.75
8 8.151 7.844 3,907.98
9 8.167 7.830 3,904.80
. . . .
. . . .
. . . .
80 8.200 7.800 3,898.31 <= Exact solution
 .
This method is that of successive approximation. The result is shown as in below. As a
result, the warehouse should be located in Da Nang.

Modal choice

Cost type Method of Rail Truck Air

computation

Transportation R*D (0.01)(55,000) = 550 (0.03)(55,000) = 1,650 (0.5)(55,000) = 27,500

In-transit ICDT/365 (0.25)(3)(55,000)(7)/365 (0.25)(3)(55,000)(4)/365 (0.25)(3)(55,000)(1)/365

inventory = 791 = 452 = 113

Plant inventory ICQ/2 (0.25)(3)(40,000)/2 = (0.25)(3)(20,000) (0.25)(3)(12,000)(0.94)/

15,000 (0.97)/2 = 7,275 2= 4,365

Field inventory IC’Q/2 (0.25)(3.01)(40,000)/2 = (0.25)(3.03)(20,000) (0.25)(3.5)(12,000)

15,050 (0.97)/2 =7,347.75 (0.94)/2 = 4,935

Total 31,391 16,724.75 36,913