Shawcross SCM report

SUPPLY CHAIN NETWORK

B2B
B2G

Raw material planning

and procurement

Final products
transportation
Raw material Production and
Raw material
Supplier reception and final product
warehousing
inspection inspection

Final products
warehousing

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Shawcross
 KEY SUPPLY CHAIN
STRENGTHS
Effectivness Quality
Supply chain effectiveness Quality of raw material
and efficiency delivered by suppliers

Security Stable costs

Secure supply availability of Stable and controllable
raw and refined ingredient supply chain costs

Supplier efficency Accuracy

Timely planned orders and Timely deliveries to
deliveries customers

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PURCHASING AND RECEIPT PROCEDURES
Production
Planni

Order placement
Start
ng

planning
Purchasin

Order review &

g

launch
procurement

Receive order and

Supplier

Notification
send raw material

Shipment received Notify supplier

Storage & Warehousing

Finish

Not OK

Quality / OK
Control Quantity Receive shipment
control
 PURCHASE STRATEGY FOR
PRODUCTION EQUIPMENT
 Production equipment consists of two type:

• hard production machinery and

• specialist (sensitive) equipment

 In case of extending the production in 4 other countries, centralized purchase of equipment should be
considered as a better choice, due to the next facts:

• When it comes to the regular maintenance and order of the spare parts, it is better to be done through one
procurement request towards the supplier from which the equipment is initially procured.

• For the repairs, this means that one supplier will conduct repairing service. This means that it is possible to
sign a better contract with him in terms of costs and other elements.

• If all the equipment is provided from one supplier, it should be easier for Shawcross maintenance
department to conduct regular internal maintenance operations and to develop procedures necessary all-
in-one procedures.

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INVENTORY MANAGEMENT
 We have Q = √(2RS/KC)
 Current situation:
o Unit cost per Tone is £4,500
o Average annual use is 24 Tones
o Re-order costs are £380
o Carrying costs are 30%
EOQ = √ (2 x £380 x 24) / 0.3 x £4,500
EOQ for Molybdinum = 3,67

 New situation:
o Unit cost per Tone is £5,300
o Average annual use is 24 Tones
Change in total inventory costs:
o Re-order costs are £100
o Carrying costs are 15% Reduced by 33,25%

EOQ = square root of (2 x £100 x 24) / 0.15 x £5,300

EOQ for Molybdinum = 2,45

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 Figures at project breakeven (5 years):
o Projected revenues 44 Million EUR
o Purchase costs 28 Million EUR
o Profit 10 Million EUR
Profit leverage= 10 / 28 Million EUR
Profit margin = 35%
 New figures at project breakeven (5 years):
o Projected revenues 44 Million EUR
o Purchase costs 22 Million EUR
o Profit 10 Million EUR
Profit margin = 10 / 22 Million EUR
Profit margin = 45%
Recommendations to lower the costs
of goods purchased:
 Recommendation 1
Negotiate better terms and price with the
supplier by forming a long-term alliance
with the key supplier.
 Recommendation 2
Initiate a call for tender to try and find a
better supplier with lower costs without
sacrificing the quality, and optimize costs
by sequencing the supply chain to reduce
carrying costs .
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 STRATEGIC COMPARISON
Shawcross Current Strategy SHAWCROSS-MEDI-TEC Strategy

 Small demand uncertainty.  Medium demand uncertainty.

 Production and distribution decisions demand driven.  Production and distribution based on long-term forecasts.
 Focus on the order fulfillment and responsiveness.  Focus on the supply chain planning and resource allocation.
 Push-pull boundary: Waiting for orders.  Push-pull boundary: Maintain a good level of final products in
the warehouse.

Changing aspects

 Demand uncertainty will increase due to the market expansion.

 Demand forecasting instead of waiting for order.
 Push-pull boundary shifted from the production planning towards final
products warehousing.

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 SHIPPING AND DELIVERY OF SENSITIVE
GOODS
 Basic product information:

• Product to transport: Sensitive equipment

• Location of the manufacturer: Germany/France
• Location of the delivery: Nairobi, Kenya

 Proposed International Commercial Terms (Incoterms):

DDP (Delivered Duty Paid)

• Its better that manufacturer who posses the expertize of the sensitive equipment organize the
transportation to the place of destination to be cleared for import.

• Manufacturer is obligated to organize and finish all the exporting part and clear the goods, which is
including all the required papers and customs specifics.

• Since this needs to be a combined transport (water and land), handling a sensitive equipment will have
certain amount of risk and with this incoterm, seller – manufacturer bears all the costs and risks involved in
bringing the goods to the place of destination.

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 EXPOSURE TO FOREX VARIATION

 New Operations & production in the new sites involve

significant levels of operational overseas purchasing over
a range of currencies.
 The next three strategies are used for the forex
fluctuation protection:
 Cost recovery method : Firstly recover the cost of goods
sold, after the entire costs are taken into account, then
recognize all remaining cash receipts as profit,
 Extending the timeframe during which pricing is fixed .
 Focusing on international supplier: This way, material
could be requested from a country where costs are more
competitive

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SUPPLIER SELECTION AND COMPLIANCE

• Growth in the pharmaceutical industry and releases of patents for

generic use has created a move toward shorter term supply
contracts and more strategic ‘shopping around’ with the suppliers
providing raw material and ingredients

 Four key criteria are used for assessing new suppliers:

1. Quality of raw material and ingredients
2. Availability
3. Consistency
4. Pricing

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“Those in Supply chain
know that the impossible is
possible.”

—Someone famous

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Thanks!
Shawcross