supply chain expert

supply chain paper. 

there is a  guidance for the inventory part.

the inventory part in the paper is already somewhat written to answer to some of the questions in the guidance.  

but, all the questions in the guidance should be handled in the paper and some answers for some questions are missed. 

you need to find what questions are missed and write answers for the missing questions. 

due in 7 hours. 

Stage 3 Inventory

In this stage, you are going to consider the storage of your raw material, parts or components, as well as your products. You should at least answer the following questions:

· What do you need to store? Are the storage of dependent of independent demand? How much of each item are in demand annually or monthly? How much is the value of each item in storage? How about the total value? How will you classify your inventory?

· Given that inventory carrying cost takes 30% of the value, according to the estimated demand from Stage 1, how many orders should you make annually for each inventory item, respectively? How long is one order cycle of each inventory item, respectively? How much will you spend on inventory in terms of inventory carrying cost and ordering cost, respectively and totally?

· Will you need safety stock? How much inventory appropriately do you need as safety stock? How do you decide the safety stock level?

· How will you manage your inventory and order as a demander/customer? How will you fulfill your customers’ order as a supplier? What strategies will you use? (JIT?VMI?) How will those strategies benefit your business? What are the difficulties in applying those strategies? How will you overcome them?

· How is your material flow like both inbound and outbound side? Where is your business located in the supply chain? Is your supplier a local one or distance one even abroad? Are you a local supplier? What will the location affect the way you do your business?

· How will you deliver your products/services to your customers? Will it make any change to your distribution channel when lockdown in the pandemic? In what aspects can lockdown affect your business?

· According to your inventory and safety stock level, how will you obtain your storage space? Will you rent a warehouse, utilize your own space, or decide to turn to a 3PL warehouse? Why do you make such decision? How will the decision affect your total logistic cost?

· What functions do you expect your warehouse provide? (e.g. accumulation? Sortation? Or value-adding functions?) Why are those functions important to your business? What material-handling activities will be involve under those functions? What will you do (manage warehousing by yourself) or what will you suggest your warehousing provider to do to provide effective and efficient warehousing service?

· How will you set criterion to assess the distribution performance? What indicators are more important to your business as well as your inventory items than others? Why?

Introduction

CleanClub Supply Company is a cleaning supply manufacturer and wholesaler located in Winnipeg, Manitoba. Founded in the wake of the Covid-19 pandemic, we look to create cleaner and safer public spaces for people across Canada. At CleanClub Supply Company, we manufacture and distribute high quality, yet affordable, hand sanitizer and alcohol based disinfectant sprays. We operate on business-to-business sales channels, meaning we distribute our products primarily to hospitals, schools, retail stores, gyms and community centres.

In March of 2020 global supply chains were stretched thin and pushed to the limits for numerous goods as the rapid spread of Covid-19 began to instill fear in consumers and shut down business in North America, and across the globe. Select items were hit particularly hard by supply chain disruptions and demand spikes, including toilet paper, facemask, and disinfectant supplies such as alcohol wipes, hand sanitizers and disinfecting sprays. Stockouts and shortages of such products were not only a nuisance, but also affected the safety of millions of individuals worldwide, who were unable to secure products that reduce the spread of germs, bacteria and disease. 

In 2019, the global market for hand sanitizer was estimated at $2.7 billion USD, this market is supposed to grow to $3.3 billion USD in 2020, and $13.7 billion USD by 2027 (Grand View Research, 2020). This incredible market growth is primarily attributable to ongoing concerns about Covid-19. While many researchers and epidemiologists believe life will be back to normal with the release of a vaccine by the end of 2021, many experts believe the pandemic will change human behaviour for decades to come. This expected change in human behaviour should be beneficial to companies who sell sanitizers, disinfectants, household cleaning supplies as consumers become increasingly concerned with hygiene and cleanliness.

Prior to Covid-19, the market was dominated by a handful of large global enterprises including Procter & Gamble, Unilever, Reckitt Benckiser Group, and The Himalaya Drug Company, among others. However, the rapid shock to demand and the expected growth prospects for the industry have created a great opportunity for new entrants. The spike in demand has left the current market leaders unable to fulfill demands, creating the opportunity for small local players to fill a void and enter through distribution channels that were previously filled by the market leaders. Along with this unfilled demand, is the prospects of a rapidly growing market. By entering through the void left by the major players and developing a presence in Canada promptly, CleanClub Supply Company will be able to scale quickly by securing just a small piece of the burgeoning industry, resulting in significant returns in just a few years.

In the coming analysis of CleanClub Supply Company, we will partake in a detailed examination of our company’s procurement process, transportation system, inventory management, and sales channels, shining light on the fantastic opportunity our firm has identified and plans to execute on.

2. Procurement (Jon and Erik) 

a. Direct and Indirect customers

b. Supplies and capital equipment we need to create our product

c. Which supplies are generics/distinctive/commodities/criticals

d. Supply market, which suppliers will we use and why, criteria used to select suppliers, risks

e. Estimated cost of procurement process

Now that we have determined the positioning of our company in the supply chain, it is necessary we determine who our target customers are in order to plan accordingly in all other aspects of our business. Given we have positioned our company as a manufacturer and wholesaler of cleaning supplies, we will be reliant on relatively high sales volumes to drive our profit margins. This makes business-to-business the optimal sales channel on which to operate to meet the sales levels we require.

Due to the Covid-19 pandemic, hand sanitizer and disinfectant sprays have gained an integral role in many businesses, but none more so than those providing goods and services open to the public. For these businesses, not only do they require cleaning products to provide a safe and clean environment for their employees, but they must also ensure all surfaces and products are sterile at all times to protect the clientele as well as providing sanitizer for the personal use of all those entering their business. Additionally, retailers in particular have the added demand of hand sanitizer and disinfectant sprays for the purpose of resale. It is for this increased demand that we have chosen to supply these types of businesses; such as hospitals, schools, gyms, community centres, and retail stores.

Seeing as CleanClub Supply Company is a startup based in Winnipeg, our initial direct customers will be fairly regional. We will focus on supplying hospitals, schools, gyms, community centres and retail stores in Winnipeg and surrounding areas within Manitoba. While these will be whom we are directly selling to, that doesn’t make up the extent of our customers. Many others will benefit from the use of our products indirectly via our direct customers, making up our indirect customers. These will be patients at the hospitals we supply to, students in schools, shoppers at retail stores, service users and any staff of the businesses we supply.

Next, we must determine the actual inputs and capital equipment required for production of our products. In order to make our hand sanitizer, we require isopropyl alcohol, hydrogen peroxide, glycerol and distilled water. For our disinfectant spray we require all of the above except for glycerol. Water need not be sourced from suppliers as we will have a direct hookup for it but the rest of the supplies for sanitizer and disinfectant spray must be sourced, with isopropyl alcohol making up the majority of our purchasing as it is the predominant ingredient in our products.

Once our products are manufactured we will need vessels by which to bring them to market. These will come in the form of 2 litre bottles to put our hand sanitizer and disinfectant spray into and we will purchase them in bulk. Sprayer heads and dispenser heads for the bottles will also need to be purchased. When the cleaning supplies are bottled, we still need some form of packaging to group them together into orders for transport, and for this cardboard boxes would suffice; which will also be bought in bulk at reduced costs. 

All of the required supplies for production and packaging of our cleaning supplies fit into the category of commodities. This is due to them being basic production items and packaging that are essential to our final product as well as their ability to be multi-sourced and purchased in bulk.

Having accounted for all the supplies required to manufacture our cleaning supplies, we will need capital equipment to enable the actual production. First and foremost, we require a warehouse for the purpose of producing our products as well as being a storage facility for inventory. In addition to a warehouse, we will need batch tanks for the uniform mixing of our sanitizer and disinfectant, ensuring a high standard of product is reached consistently. We will also need filling machines to keep production flowing and maximize efficiency, as well as forklifts to transport products around the warehouse. All of the required capital equipment mentioned is essentially identical to that used in distilleries, making an ex-distillery the optimal base of our operations seeing as we wouldn’t need to source all the capital equipment ourselves; saving time and money. Assuming we source everything ourselves however, we will elect to lease all the capital equipment and offset payments with sales revenue.

In terms of our supply market, we will be getting the majority of our ingredients from RW Consumer Products, a local Winnipeg company. They will be supplying us with bulk amounts of isopropyl alcohol, glycerol, hydrogen peroxide, and distilled water. Our packaging and bottles will be supplied by Reliance Products, who is also based in Winnipeg. The spray heads for bottles will be sourced from Acklands Grainger. 

The criteria in which we have used to choose these suppliers are based on multiple reasons. The main ones being trying to stay local to keep transportation costs down, their ability to give quantity discounts, proximity to our location, and prices. 

The risks associated with choosing these suppliers are extreme weather that could cause major shutdowns in winter in Manitoba, shortages of alcohol as seen early on in the pandemic, and fluctuating prices based on availability of the chemicals. The risk that comes with weather is unavoidable as all businesses face the same situation when it comes to this. Safety stock will be kept in case of shutdowns or delays because of storms. The risk that comes with using isopropyl alcohol can be avoided by having multiple recipes for our sanitizers where we can easily transition to a different type of alcohol if needed. Fluctuating prices can be avoided by having multiple suppliers on hand and keeping consistent contact with these other suppliers to keep options available. 

Transportation  

 Because CleanClub Supply Company’s primary target market is within Manitoba, Road would be the most effective transportation mode for in-province delivery as everywhere is close enough. After careful consideration, we agreed that Road is more efficient and quicker for carrying goods over short distances than other modes of transport. Delays of the process on intermediate loading and handling can be avoided. Our inbound raw materials which are proof alcohol, water, hydrogen peroxide, spray bottles (spray), alcohol, aloe vera gel, dispenser bottle from Reliance and RW Consumer Products will be loaded directly into a road vehicle and transported straight to our manufacturer where we process them to become final finished products: hand sanitizer and spray sanitizer. And then deliver them to our partners: hospitals, schools, gyms, community centers, and retail stores by the same mode. Another reason that contributed to our decision on choosing road transport as our main delivery method is that it  needs less capital investment than rail, water, or air. We understand that our business is new and that is why we should keep our costs low to deliver our best promises to the community. Therefore, before expanding our trust and reputation to the north where air transportation is needed, we decided to retain roads as our main method in both inbound and outbound logistics. 

As we look for the benefits road transport can give us, we also consider its disadvantages which have the possibility to damage our products and contribute to the production delay. Firstly, goods are susceptible to be impaired through careless driving. If the road is disturbed or the driver is irresponsible, it is possible that our delicate raw materials which are mainly in liquid forms such as alcohol and aloe vera may be broken and damaged. In this situation, we realized that rail transport is more beneficial because the movement of the train is barely in the control of the driver and is always safe due to the straight rail track. Secondly, motor transport relied heavily on seasonal nature. During the rainy or winter season, roads become unsafe and unsuitable for use. It is extremely difficult to use, especially in some rural areas where the road constructions are not in good condition because they are damaged by snow storms which makes it less reliable to transport goods, especially Winnipeg is well-known for harsh winters. This hardly occurred in rail transport because of its reliability throughout the year when the rail is strongly built so they can’t be affected by raining or snowing weathers.  

In terms of managing the transportation process, we decide it will be controlled in the house due to the simplicity of goods we need and we believe it would not be difficult to manage the limited number of inputs needed to make the product. Although we consider a 3PL provider as one of our solutions when a 3PL provider may have an advantage in flexibility, scalability, and getting access to expertise and experiment. However, it would add unnecessary costs for little value in the early stages. For that reason, managing the transportation process on our own will be unchanged because it will save us from dispensable expenses unless we have the opportunity to expand to the North. In that scenario, Air transport would be significantly important for us to deliver hand sanitizer and spray sanitizer to the North, and outsources transportation services would be necessary. There are some airline services to northern locations already which can be considered such as CalmAir, Perimeter, FastAir, and NorthStar Air. Our Northern carrier’s performance criteria are based on the number of delivery days operating, cost per unit in transportation fees, product safety, for more local delivery priorities would be on service quality, efficiency, and on-time deliveries.

 The company agrees that minimizing costs is always a central focus of our business. Therefore, timely scheduling and planning, automating logistics systems will reduce failed deliveries and contribute to our supply chain value. Timely scheduling and planning will leverage schedule systems so planning operations such as production schedule, transit times on delivering routes move as planned. An automated logistics system tracks shipments from destination to arrival, we can spot problems in our transportation logistics and allow us to react quickly and cost-effectively. Another consideration to minimize cost is the preparation for transportation disruption. Customers could be out of sanitizer and disinfectant which in today’s environment could result in unhappy shoppers at stores, increased risk at hospitals, and other negative impacts. This could result in customers leaving for another provider of cleaning supplies, negatively impacting the business. To minimize this, we will keep a small safety stock as you should be able to store a reasonable amount of inventory in a relatively small space due to the compact nature of the packaging for the product. 

Inventory

As previously stated, CleanClub Supply Company manufactures and distributes high quality, yet affordable hand sanitizer and alcohol-based disinfectant sprays. Due to the COVID-19 pandemic, CleanClub Supply Company expects rapid growth fostered by the increasing demand for cleaning supplies. Due to the rapidly expanding demand, to ensure customers receive satisfying products it is essential to optimize warehouse storage and inventory management. If not managed properly, the company could potentially experience significant stockout costs. An efficient storage process such as static racking/shelving will be critical to ensure the warehouse’s available space is utilized appropriately and stock is organized without compromising productivity and safety measures. For increased control over product flows and customer experience, inputs and finished goods will be stored in-house.

Due to the high alcohol content, hand sanitizers and disinfectant sprays, along with their inputs are highly flammable. This characteristic requires minimal movement and extra care in inventory storage to avoid spills and ensure safe storage. The practice of static shelving ensures that products stay in one place and only move during receiving and dispatch, this inventory storage system encourages the use of “First In, First Out” storage principles to avoid having inventory sit for too long and create a leaner supply chain (Bito Storage Systems, 2020). CleanClub Supply Company will use static shelving, where each type of inventory item, and individual item, is assigned a fixed place to reduce handling costs in the facilities. 

The finished goods, hand sanitizers and alcohol-based disinfectant sprays, will be packaged in two litre bottles, and then further packed into cartons containing 6 or 12 bottles each before being stored on the shelves. The lowest tier on the storage shelves will be double stacked, however the higher shelving units will be single stack to create easier access and improve safety. The shelves will be located on two sides of the warehouse, leaving the middle space empty to reduce picking errors as well as improve safety by separating the two flammable products. On the right side will be hand sanitizers, while the left side will store alcohol-based disinfectant sprays. Since hand sanitizers and alcohol-based disinfectant sprays are classified as flammable liquids, they will require storage conditions that comply with the Fire Safety Code (Harvard Campus Services, 2020). The cartons will be lined with plastic to reduce the risk of damaged bottles leaking flammable liquids. In addition, the adjustable shelves will ensure easy access to the hazardous material and all products will be stored safely in a temperature-controlled environment.

The practice of static shelving in our warehouse offers distinct advantages over other inventory management methods we could employ. Firstly, static shelving provides centralized storage, making it easier to handle, locate, and manage the inventory. Due to inventory being stored in distinct locations, static shelving will ensure stock is easy to find, and any new personnel will require minimal training to track products (Bito Storage Systems, 2020). Shelves will be labeled for which product is to be stored there, as well as what carton count, such as “Hand Sanitizer, 12 count,” this labelling provides clarity to stock pickers and replenishers, and aids in inventory tracking. These features of static inventory systems aid in the sortation and allocation functions of our facilities, by making picking and put-away far more efficient. The company also plans to store the raw materials for manufacturing the cleaning supplies in the warehouse. Therefore, static shelving will allow the management to set aside one or two shelves for each of the raw materials, assuring adequate materials are always available whenever a need arises. The organized packing of storage racks will ensure employees retrieve products easily, which will increase their morale and productivity. Secondly, static shelving would also help CleanClub Supply Company monitor their stock levels and use lean production, maximizing the quality of products while reducing production waste, hence saving on costs and time. The organization associated with static shelving would also ensure the firm always knows how much of each input and finished good is on hand, without the need for time consuming inventory counts. The reduced manufacturing and handling costs associated with static shelving systems would foster increased returns for the company. Static shelving would improve the efficiency of inter-facility movement, shipping and receiving as the storage locations of our fastest selling products and box counts will be slotted closest to the loading docks. Finally, the organized nature of our inventory management system will make it easy to identify missing stock, discouraging internal product theft.

CleanClub Supply Company forecasts significant demand growth due to increasing concerns over Covid-19 and other viruses in Manitoba and more broadly, Central Canada. The increase in demand for both products means that the company expects to experience exponential growth in production demands, which will require more storage space for inputs and finished goods. As the sales volume increases, there will be an urgent need for extra space, which would require a lot of money to construct new facilities. Due to CleanClub Supply Company being a small, start-up organization, allocating capital expenditures efficiently early is critical to remaining solvent. Therefore, investing in appropriate storage early on will eliminate the need for new construction when demand increases, as the management will only add more shelving units to the existing ones to hold more cleaning supplies. 

The products that need to be stored at our facility include isopropyl alcohol, hydrogen peroxide, glycerol, bottles, and the finished goods, hand sanitizer and disinfectant spray. All inputs held in inventory are considered critical items as without one, we cannot produce our finished goods. For this reason, there is no hierarchy in the classification of our inventory, each input is of equal importance, that is to say they are all “A” items. The only exception to this is administrative supplies which are not used as factors of production and are considered generics or “C” items. The demand of hand sanitizer and disinfectant spray are both independent of any other products, while the inputs mentioned above are dependent on the demand of hand sanitizer and disinfectant spray. Due to the dependency of our inputs on the finished goods, CleanClub Supply Company will utilize an MRP system to plan the requirements of our inputs based on the master production schedule of hand sanitizer and disinfectant sprays. 

Below is a breakdown of each input’s relevant inventory costs in Figure 1. As you can see, isopropyl alcohol represents our largest input expense which makes sense as it is our most used input by volume in each of our outputs. Water, another significant input, has been left off the chart as our facility will be hooked up to the City of Winnipeg water system so there will not be ordering costs or holding costs associated with this particular input. 

Figure 1. Inventory Cost Breakdown by Item.

While we do not plan to use JIT delivery immediately upon production, in the future it will be worth considering the prospect for specific inputs such as glycerol. Due to the high cost of glycerol relative to the other inputs, its holding costs based on volume is significantly higher than our other inventory items. As the years pass and demand grows for our hand sanitizer, so too will our requirements for glycerol, and with this the holding cost of glycerol will become ever more burdensome. When the time comes, by using a local glycerol supplier, entering a strategic contract and instituting just-in-time delivery, we could keep ordering costs relatively unchanged while significantly reducing our holding costs for that particular input. The concern with using a JIT delivery system for this product is the increasing transportation costs. The two factors that would need to be met to make JIT delivery cost efficient would be a supplier located within a few kilometres of our production facility and full truckload order quantities to create transportation economies of scale.

Sales

Most of the current channels to reach consumers by the largest producers of hand sanitizers and disinfectant sprays is currently done through retailers (Grand View Research, 2020). Additionally, with e-commerce becoming an increasingly dominant sales channel as the economy becomes more digital, many producers also operate their own e-commerce sales or sell through a third-party site such as Amazon. Rather than compete with brand name producers for the business of individual consumers, CleanClub Supply Company will develop sales through a business-to-business channel. By selling directly to public and private organizations, we can realize three significant benefits including eliminating third parties, reducing demand volatility, and stimulating sales through quantity discounts. By not selling through brick-and-mortar retailers, we avoid the need to cut margins in order to sell at an attractive wholesale cost for retailers to earn a markup on their sale of our product to consumers. Similarly, on third-party e-commerce sites such as Amazon, we would lose a percentage of every sale off our topline for fees associated with the distribution channel. These additional costs associated with distributing through a third-party retailer would reduce our profit margins and are easily avoided by selling directly to our target customers. Secondly, by selling direct to business, we are able to reduce demand volatility by creating a leaner supply chain and reducing the risk of experiencing the bullwhip effect by positioning ourselves closer to the consumer. By improving the predictability of demand, we are able to forecast more accurately which reduces the need for excessive inventory, thus reducing inventory related costs. Finally, by selling to large organizations who need a greater volume of product, it opens the opportunity to introduce quantity discounts to encourage purchase orders in periods of low demand. This allows for more consistent production levels all year, as demand can be stimulated through the use of discounts to corporations during the late summer to prep for the upcoming flu season. This reduces the stress on manufacturing during a typically busy season and moves it to a season where demand for sanitizers and disinfectants are lower. By strategically selecting our sales channel as direct to business, we are able to maximize operational efficiencies and improve profit margins.

6. Conclusion – Sean

References:

https://www.grandviewresearch.com/industry-analysis/hand-sanitizer-market#:~:text=The%20global%20hand%20sanitizer%20market%20size%20was%20estimated%20at%20USD,USD%203.3%20billion%20in%202020.&text=The%20global%20hand%20sanitizer%20market%20is%20expected%20to%20grow%20at,USD%2013.7%20billion%20by%202027

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Bito Storage Systems. (2020). What is static storage? Retrieved from https://www.bito.com/en-gb/expert-knowledge/article/what-is-static-storage/.

Harvard Campus Services. (2020). Alcohol-based hand sanitizer: storage. Retrieved from https://www.ehs.harvard.edu/sites/default/files/alcohol_based_hand_sanitizer_storage_requirements_safe_use_building_facility_managers_fmo_custodial_cd072a_2020_07_14 .