In this report, a Chinese candles manufacturer and its products will be discussed relate to the supply chain. Information will be collected via quantitative research method. This report also detail different parties and their roles of the supply chain, and their nature of relationships established in the process of international trade. For example, the relationship between suppliers and manufacturer of the supply chain, and illustrated by specific article. Finally, discuss several risks and challenges that the company may faces when doing international trade and how to solve them in properly ways.
2.0 Company and its Product
The company that I chose to complie the report is Ningbo Tianyuan Industrial & Trading Co., Ltd. It established in 2003 in Ningbo City, China. It is a giftware and houseware manufacturer and supplier with experienced R&D department. The company has 500 experienced employees and generates $1,000,000 to $ 3,000,000 US dollars in annual revenue. Its products include full range of candles and holders, stainless steel products, home fragrance products and TV products. This company also exports its product to Asia – Pacific area.
As experts in manufacture and distribution, the company is involved in every stage upon manufacturing operation from purchasing raw material to production and packing. Its extensive skills encompass all aspects of production and supply, including order fulfillment, product’s quality control and production flexibility.
Typically, candles and holders are specific product discuss in this report. Furthermore, it manufactures product of Dusk in Australia and became one of authorised distributor to sell its product to world wide area.
3.0 Research Methods
In this paper, I used quantitative research methods to collected information about the company and its product. Kirakowski, defines a questionnaire in a more structural way as “a method for the elicitation, and recording and collecting information” (Kirakowski, 1998).
The reason I chose quantitative is that I am searching out an area of interest, and I need to get some sort of overview. Moreover, quantitative methods provide broad scope information, low costs, high external validity and reusable. There are many types of quantitative methods, most popular methods including mail, fax and web-based/Email questionnaires. Because of the location of the company, there is no way I could interview with staff who works with this company. Hence, I used web-based/Email method to gather information. This method has high response rate, low cost and spend less time than other methods. Most information is already in electronic format, for example, catalogue of the company which including company history and structure, product lines and market. Refer to this company, quantitative research method is effectively and suited for collect information to compile this report.
4.0 Parties involved in the supply chain
In this section, the parties involved in the company’s supply chain and their role will be discussed. A supply chain is a network of suppliers, distributors, manufactures and retailers/customers that participate in the production, delivery, and sale of a product to the consumer. Typically, the supply chain is made up of multiple companies or by themselves who coordinate activities to differentiate themselves apart from competitor. Moreover, John J. Coyle (2007, p.257) states that “supply chain can be regarded as a pipeline or conduit for the efficient and effective flow of products/materials, services, information, and financials from the supplier’s suppliers through the various intermediate organizations/companies out to the customer’s customers or the system of connected networks between the original vendors and the ultimate final consumer.”
Suppliers, distributors, manufacturers and retailers/customers are regarded as different parties of the company’s supply chain.
Suppliers are the first stage of supply chain. Generally, suppliers are responsible for purchasing and procurement operations in supply chain. Raw materials or natural resources are purchased by suppliers for which a company’s needs to procure goods or services that are required to manufacture a product. These topics are considered by organizations who try to improve the overall efficiency and effectiveness of their supply chain. Before a company purchase raw materials, it needs to forecast the market demand of its finished product, and then do so, it can avoid waste of materials and reduce costs. The selection of supplier is important for a company. Factors that a company needs to be considered when select a properly supplier are quality, reliability, risk capability, financial and desirable qualities. For example, if the company select a supplier who provide excellent quality resources, low risk and reliability, but supplier is located in long distance, hence, the cost of transportation is taken into account.
Brian Gibson (2007, p.462) states that ‘distributors no longer focused on long term storage of inventory in static warehouses, it provides a variety of capabilities for the supply chain.’ The goal of distributor is to serve the supply chain quickly and accurately. Distributor can be regarded as a transshipment point in supply chain. Generally, what distribution do of the supply chain are shipment of finished products from manufacturer to retailers/customers, or movement of finished products from distribution facilities to retailers/customers. Roles of distributors of supply chain are balancing supply and demand, protecting against uncertainty, allowing quantity purchase discounts, supporting production requirements and promoting transportation economies. For example, Distributors can use their facilities to receive and hold large amount of inventory for company for future requirements.
In supply chain, manufacturers are responsible for receive raw material or natural resources from suppliers, and then produce finished goods through manufacture procedure. Finally, it sells finished goods to retailers/customers. Brian Gibson (2007, p.331) states that ‘In many organizations, manufacturers are measured by how efficiently they can produce each unit of output.’ Usually, Manufacturers will face long and short production runs. For long run production, manufacturers require high level of inventory of raw material for finished product. Hence, more and more manufacturers tend toward shorter production runs to reduce costs. On the other hand, long production runs provide low labor and machine costs per unit.
Retailers and customers are regarded as the final stage of the supply chain. In commerce, retailers buy a large amount of finished goods or products from manufacturers, and then sell small quantities to customers (the end user). For example, Woolworths and Coles are the most famous and successful retailers in Australia. Furthermore, Customers are not only acting as the end user, but also determine where the market should be positioned. Robert A. states that ‘Considering that manufacturing and logistics facilities are positioned in the supply chain between customer and supply markets, any changes in these markets should cause a firm to reevaluate its logistics network.’ For instance, Chinese population shifted from north to southeast, new warehouse and distribution facilities are built. As a result, cities such as Shanghai, Guangzhou and Xiamen have become popular distribution center location for companies.
5.0 Parties’ nature of relationship in the process of international trade
As this report mentioned before, Ningbo Tianyuan manufactures candles and holders in China, and then exports to Asia – Pacific area, and its main market is Australia. During this international trade process, the company is not doing the supply chain by them self, but collaborate with others suppliers and distributors. The company implement the focus strategy and it focus on cost segment. The company believes that focus strategy providing better goods and services than competitors who do every stage of the supply chain. As a manufacturer, the company does not have enough capital to build and operate its own supply stations and distribute centers.
In the article ‘Thomas Built Buses’, Thomas Built improved production efficiency, capacity and costs through linked with HP who supply resources and material for the company production. Since Thomas Built worked with HP, it improves production capacities through lean manufacturing principles and a just-in-time delivery sequence.
For manufacturing candles, Ningbo Tianyuan has to purchase raw materials from suppliers for production of candles, such as paraffin, stearic acid and beeswax. Base on the focus strategy, it pays suppliers to implement the process of gather raw material. It raises costs but at the same time, it improves production capacity of Tianyuan, because the company has more time and human resource to work at manufacture process. On the other hand, the manufacturer has to make sure that are several suppliers who are available in the supply chain. For example, lack of materials, due to catastrophic phenomena, one of the suppliers cannot deliver material to the manufacturer, there are other suppliers as substitutes. Furthermore, Tianyuan has implement Just-In-Time manufacturing system when it collaborate with suppliers. As the demand of production is not clear, it increases productivity, work performance and product quality, while saving costs.
Distributors act a vital role between manufacturers and consumers. Tianyuan is focusing on manufacture and left the delivery and storage section for its distributors. In the article ‘The role of distributors in today’s economy’, Marcus W. Pillion states that ‘distributors handle multiple products from various companies, they can bundle components into turnkey systems. Moreover, it is human nature that distributors tend to focus on companies which support them well.’
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Tianyuan is selling candles and holders, its distributors can design a special package for storage, and provide efficient delivery and often lower costs. Furthermore, Tianyuan realize that distributors are both business partners and customers, they are not just sells product and managing inventories, but also provide aftermarket services. Hence, Tianyuan collaborates with domestic and international distributors to sell its product and supply technical staff to support them.
Tianyuan does not have its own export department. Therefore, it collaborates with an indirect export agent. Sandra .L states that ‘Indirect exporting represents the least expensive and lowest-risk method of participating in foreign markets because it is relatively easy to initiate and requires a meager up-front capital investment.’ Generally, indirect exporting agents act as intermediaries, linked with manufacturer and foreign retailers/customers.
When a company want to export its product to others countries, it need to apply an export license for export permit. Tianyuan does not faces with this problem, because its export partner. The more importance of export agent is that, the company can uses export agent’s bank credit to pay correlative charges of export, and repay it in a period. After the products arrive in the destination, the export agent is responses to deliver it to local retailers or customers.
6.0 Challenges involved in international trade operations
There are several challenges which the company may faces when it operating international trade. Especially the following:
Anti – Dumping tax
Long distance transportation
6.1 Exchange rates
Exchange rate is a part which a company cannot ignore, when it operating business in global market. US dollars are regarded as exchangeable bases currency for international trade. According to current situation, US dollars are depreciation. Relate to Tianyuan, it raises transportation costs when it exports its products to Australia. The solution for that is applying forward exchange rates from the bank. The forward exchange rate refers to an exchange rate that is quoted and traded on someday which the exchange rate is suited for the company, but for delivery and payment on a specific future date.
6.2 Anti – Dumping tax
When a company exports its products to another country, anti – dumping tax may apply. It refers as a tariff imposed to protect domestic firms from import competitions. It could raise costs and reduces profit when Tianyuan exports its products to USA. Therefore, many Chinese candles manufacturer built new facilities in Vietnam and then export their products directly to USA to avoid the anti – dumping tax.
6.3 Long distance transportation
This question happens in every business when exporting their products. Due to the long distance from manufacturer to retailers/customers, situations of lack of supply and bad quality of products are always emerged. Relate to Tianyuan’s product, candles are easily broken and melted in the course of carriage. To avoid those problems, staffs have to double check control of quality and packing before the products deliver or strengthen protection of its products which pack candles with sponge.
When a company doing international trade, there is no payment methods is 100% safe. Even the company receive deposit of an order, if buyer refuses to pay the rest of amount of the order, it still occur a loss of the company. To reduce the risk when trading, the company has to verify buyers’ contact details and address, background and legal registration number.
To summaries, a supply chain has three key parts: supply, manufacturing and distribution. Suppliers, manufacturers, distributors and retailers/customers play different roles in the supply chain. Suppliers provide raw material for manufacturers to produce finished goods/products for distributors, and then store them and deliver to retailers/customers. After analysis, distributors act as business partners of manufacturers and sellers in the process of international trade. Moreover, solutions of challenges that the company faced in the process of international trade are illustrated. International trade provides opportunities for business to expand their markets for goods and services, but also provides risks and challenges at the same time.
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