Operations Strategy Supply Chain Management Research Proposal

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Supply Chain Automation at Imperial Tobacco Canada

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Research Proposal on Operations Strategy Supply Chain Management Assignment

Imperial Tobacco Canada is in a highly competitive, turbulent and rapidly changing industry that requires their supply chain operations to be tightly synchronized with their packaging, fulfillment, and distribution channel operations. The catalyst for synchronization needs to be the distributed order management system that can enable Imperial Tobacco Canada to accomplish its supply chain operations, financial and long-term order accuracy and customer satisfaction objectives as well. Table 1, Tobacco Industry Supply Chain Measures of Performance explains the key performance indicators (KPIs) and measures of performance critical to Imperial Tobacco Canada attaining their strategic plans and objectives. All of the KPIs and measures of performance shown in Table 1 all combine to measure accuracy and profitability of orders delivered, what many supply chain experts call the Perfect Order. For Imperial Tobacco Canada their challenge is to better align their supply chain and its perishable goods to its packaging, fulfillment and distribution channel operations. The velocity of transactions that Imperial Tobacco Canada can attain is going to be directly related to the level of profitability they will reach. To be accurate, fast, and have a very high level of order accuracy from multiple layers deep in their supply chains while also being able to manage forecasts from distributors and dealers is going to be critical for the long-term financial success of Imperial Tobacco Canada. The intent of this research is to evaluate how automating their supply chain through the use of distributed order management systems and better integration with suppliers and distributors will increase transaction velocity and increase financial performance of the company. To be clear, this is not saying that merely adding in technologies for their own sake is going to make Imperial Tobacco Canada more efficient; it is saying that in redefining and revising their supply chain planning, management and fulfillment functions and coordinating them more precisely with distribution partners, that the company will be more competitive and effective over the long-run. The intent of this study is to evaluate the contribution of automating supply chain operations have on transaction velocities and overall supply chain performance as measured by the metrics in Figure 1 of the Appendix.

Introduction and Description of the Organization

Imperial Tobacco Canada competes in a relatively flat Canadian domestic market for tobacco, with compound annual growth rates in the 4% range for the years of 2003 through 2007 common (Inness, Barling, Rogers, Turner, 2008). Cigarettes are 96% of the market's value, which has been estimated as worth $12.3B in 2007. From 2007 through 2012, the market is expected to further slow in terms of growth to 2.1% over this five-year period, with just a slight increase in total market value to $13.6B by 2012 (Inness, Barling, Rogers, Turner, 2008). Figure 1, Canadian Tobacco Market Value, $B, 2003-2007 illustrates the challenging environment that Imperial Tobacco Canada finds itself in, and the criticality of having an automated supply chain that can streamline their existing processes and make them more cost- and time-efficient. The slowing market growth rate can be attributed to increase global competition in Canada, and the initiatives in place to restrict under-age consumption of tobacco. Of these, the second one is the most significant in terms of its impact on the long-term costs of operating in Canada as subsidies are required in the form of taxes on Imperials' products.

Figure 1: Canadian Tobacco Market Value, $B, 2003-2007

Source: Imperial Tobacco Canada financial reports

Imperial Tobacco Canada is comprised of several subsidiaries, including Channel 2 which specializes in merchandising activities, additional brands including Imperial Brands Lt., John Player & Sons and Allan Ramsey & Company Ltd. As well. On February 1, 2000 when Imperial Tobacco Limited became part of the British American Tobacco Group, it was able to gain significant financial support for product line and distribution investment. Table 2 in the Appendix presents a ratio analysis of British American Tobacco. These ratios indicate that British American Tobacco has been successful in integrating their acquisition of Imperial Tobacco Canada. This is specifically shown by the growth of Return on Assets (ROA), Return on Investment (ROI), and the increase of one inventory turn over the years analyzed. While these results indicate a supply chain that is gradually improving, it does not illustrate one that is high performing. Inventory turns above 7 are possible in this industry (Inness, Barling, Rogers, Turner, 2008), and needs to become an objective for the company to work to attain in conjunction with driving up ROA and ROI figures.

Integral to Imperial Tobacco Canada division are processes that initiate, execute, track and analyze the performance of tobacco products delivered globally. Imperial Tobacco Canada competes in the United States and Latin American countries, so tracking supply chain performance is critical in this regard. The Imperial Tobacco Canada relies on several distributed order management systems that initiate transactions; track them, measure order accuracy and velocity, fulfillment percentage of on-time, early vs. late deliveries, and method of shipment. These distributed order management systems however are not integrated with one another and rarely are synchronized from a supply chain management and demand planning standpoint. The company has yet to fully adopt Collaborative Planning, Forecasting and Replenishment (CPFR), which would give them a significant competitive advantage in managing inbound demand from their channels (Johnson, 2008).

The intent of this research is to evaluate how communication and information technologies can contribute to higher levels of order accuracy and velocity throughout Imperial Tobacco Canada and its supply chains and distribution network. Distributed order management systems specifically created for services companies share process commonalities with manufacturing-based Enterprise Resource Planning (ERP) and distributed order management processes and system attributes (Stecke & Zhao, 2007, et.al). Imperial Tobacco Canada relies on a comparable make-to-stock process workflow that seeks to optimize the freshness of each product being produced (Stecke & Zhao, 2007, et.al). The theory of constraints as it relates to the defining and evaluating of processes within manufacturing-based ERP systems has even greater significance in the context of Imperial Tobacco Canada as its four operating divisions, where accuracy and velocity are the catalysts of their unique value proposition and foundation of trust with its consumer and commercial customers (Williford & Chang, 1999, pp. 204, 205, 206).

Constraint modeling is used within Imperial Tobacco Canada to optimize logistics and global supply chain coordination with corporate accounts including the streamlining third-party logistics functions (Alghalith 2007, pp. 297-303) and (Babcock, 2006, et.al). Combining distributed order management systems is the means by which Imperial Tobacco Canada can synchronize their time-based product deliveries while also relying on an optimization engine that can determine the optimal routing, pricing, and potential for delivery delays gives the company a unique competitive advantage (Nichols, 2003, et.al).

A second major aim of this research is to evaluate the effectiveness in terms of increased accuracy and velocity global distributed order management systems have within the Imperial Tobacco Canada operating divisions and the resulting impact on key performance indicators (KPIs) and metrics of performance as shown in Figure 1 of this paper. The ability of Imperial Tobacco Canada to attain a high level of logistics and supply chain performance quantified by the perfect order metric (Novack & Thomas, 2004, et.al.) is also an objective of this study. Imperial Tobacco Canada is a culture that relies heavily on analytics and business intelligence including the use of dashboards and scorecards as well. The adoption of the KPIs introduced in Table 1 of this document will experience a relatively high rate of user adoption as a result.

Assumptions and Scope

The following are the key assumptions of this research effort to understand how distributed order management (DOM) systems when integrated with each other are going to deliver higher levels of performance at Imperial Tobacco Canada:

The greater the level of process and system integration the higher level of ROI and ROA achieved over time.

The development of an integration strategy between distributed order management systems at Imperial Tobacco Canada will have a direct effect on the ability of the company to keep its distribution channels adequately stocked with products.

The more real-time the integration between systems the greater the inventory turns over time.

The development of ERP integration points for the distributed order management systems will lead to a greater level of order accuracy over time.

The use of metrics within Imperial Tobacco Canada will eventually transform the internal culture to concentrate more on the ability of the company to develop strategies for optimizing perfect order performance.

The scope of this report is global, as Imperial Tobacco Canada's operations. The concentration is on how tight integration of distributed order management systems specifically and supply chain management systems in general can increase transaction velocities across broad geographic regions.

Major Issues

The two most critical issues that are facing Imperial Tobacco Canada is the adoption of the change in day-to-day processes that will be required when the systems are integrated together and go live. Undoubtedly there will be… [END OF PREVIEW] . . . READ MORE

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