Case Study 3: Alaska Supply Chain Integrators Cost Of Goods

Case Study 3 Alaska Supply Chain Integrators Cost Of Goods Alask

Case Study 3 Alaska Supply Chain Integrators' cost of goods Alaska Supply Chain Integrators (ASCI) purchases goods for oil companies working on the North Slope of Alaska. The North Slope is the oil production field where crude oil is extracted and then transported to the shipping terminals in Valdez, AK. From Valdez, the oil is shipped to other ports on its way to becoming refined petroleum products such as gasoline. ASCI purchases approximately 40,000 items per year for these oil companies. The cost of goods (COG) purchasing, handling, and transportation process is subject to many variables.

To enhance ASCI's supply chain capabilities, it has developed a state-of-the-art supply chain management and electronic commerce tool—a software system. This system facilitates control of the procurement process through a series of checks and balances. The various software modules describe the business functions in their names: SmartTracker, SmartCatalog, SmartMarkets, SmartMeasures, SmartBOM, SmartSpecs, SmartActions, SmartTagger, SmartBundler. Key to many of these e-commerce capabilities are time-sensitive measurement metrics. ASCI's time measurement units include weekly, monthly, and quarterly timeframes for three tiers of vendors.

These internal metrics are also linked to the Balanced Scorecard method to track vendor delivery compliance agreements. Vendors are held accountable for on-time and accurate delivery of items. Through these metrics, ASCI’s 2005 performance measurement achieved a 90.6% rate of on-time and accurate delivery of goods to North Slope customers.

The problem ASCI's e-commerce solution aims to address is the lack of visibility in tracking or capturing the movement of goods from vendor to end user or client. This lack of visibility has been a recurring supply chain management problem that, if adequately addressed, would add value to the client. To be fully inclusive and contribute the highest value, this visibility must encompass not only the tracking of goods purchased but also handling and transportation activities.

The logistics of moving the procured items provides a way to measure and enhance added value to the product while assisting ASCI in lowering the final price paid. For example, one common issue is the misclassification of the purchase price with the total price of the goods, including transportation costs. When transportation costs are integrated into the purchase price, the actual cost of materials appears inflated, obscuring the true costs and hindering root cause analysis. A critical factor in providing supply chain visibility is tracking the product from receipt to final delivery.

Currently, tracking is achieved through a combination of bar codes, visible inspection, person-to-person contact, and manual computer entry. Recently, a proposal was presented to demonstrate that RFID technology could improve tracking efficiency, save time and money, and enhance overall supply chain management. RFID could facilitate real-time tracking of high-value items like generators from factory to warehouse on the North Slope and inside the cross-docking facilities.

Bob Tibmen from MX Consulting explained that when RFID tags are placed on pallets or high-value items, the system can instantly read the product, origin, due date, and related information upon entry into a facility. The RFID system could eliminate the need to open boxes and manually scan barcodes, reducing labor costs, potentially allowing the elimination of one or two staff positions involved in loading, processing, and checking products during entry. This technology offers promising benefits in reducing costs and improving visibility for ASCI’s supply chain operations.

Paper For Above instruction

In analyzing the potential implementation of RFID technology within Alaska Supply Chain Integrators (ASCI), it is essential to consider the operational, financial, and strategic implications of such an upgrade. RFID (Radio-Frequency Identification) presents an innovative solution to longstanding visibility issues in supply chain management, specifically in tracking goods from vendors to end customers. This discussion explores the recommendations for Bob, advice for Scott and his management team, how RFID influences the cost of goods (COG) calculation, and the potential savings that RFID can generate.

Recommendations for Bob

For Bob, the primary focus should be on ensuring that the RFID implementation aligns with ASCI's operational needs and strategic goals. First, he should conduct a thorough feasibility assessment, evaluating the specific benefits RFID can deliver against costs, including infrastructure, equipment, and training. Engaging in pilot projects for high-value or high-turnover items can demonstrate tangible benefits before full-scale deployment.

Bob’s team should prioritize establishing clear technical specifications for RFID tags and readers. Given the harsh environment of the North Slope, equipment durability and reliability are critical. He should also advocate for training programs for staff to effectively operate and troubleshoot RFID systems to ensure seamless integration with existing logistics processes.

Additionally, Bob should emphasize data accuracy and security, setting standards for data capture, storage, and access controls. This will preserve the integrity of real-time information, which is vital for accurate inventory management and cost analysis.

In terms of change management, Bob should coordinate with the supply chain team to develop phased rollout strategies, combining RFID with existing barcode systems initially, to minimize disruptions. Continual evaluation metrics should be established to monitor performance improvements, cost reductions, and overall system effectiveness.

Advice for Scott and the Management Team

Scott, as the manager overseeing operations at ASCI, should view RFID implementation as a strategic enabler for supply chain transparency and efficiency. He should champion cross-departmental collaboration to ensure the RFID integration complements procurement, warehousing, and logistics functions. It would be advisable for Scott to prioritize stakeholder engagement, including vendors, to ensure they understand the benefits and requirements of RFID tagging.

Management should also focus on cost-benefit analysis—quantifying expected savings from reduced labor, improved inventory accuracy, and minimized errors versus the investment costs of RFID hardware and software. Pilot programs should be conducted to validate assumptions and refine deployment plans accordingly.

Furthermore, Scott ought to consider the strategic value of RFID data in enhancing decision-making, leveraging insights about item flows, bottlenecks, and supplier performance. This visibility can lead to better negotiation leverage, improved vendor compliance, and more accurate cost management.

From a broader perspective, Scott and his team should ensure that RFID deployment is aligned with the company's overarching goals, including reducing total supply chain costs and boosting responsiveness to client needs. Training, change management, and ongoing system evaluation are critical to realizing the full benefits of RFID technology.

Impacts on Cost of Goods (COG) Calculation

Implementing RFID technology can significantly influence the accuracy and transparency of the cost of goods. Typically, COG includes all costs directly attributable to the production or procurement of goods, such as purchase price, handling, and transportation. Currently, ASCI faces challenges due to the misclassification of transportation costs within the purchase price, which inflates the perceived cost of materials and complicates cost analysis.

RFID's real-time tracking capabilities enable precise documentation of the movement and handling of each item, making it easier to distinguish between actual purchase costs and logistics expenses. For instance, RFID can automate the capture of transportation costs associated with specific shipments, allowing for more accurate allocation of expenses to the relevant stock items. This enhanced visibility facilitates a more accurate calculation of true COG, leading to better pricing strategies, cost control, and profit margin analysis.

Furthermore, RFID can assist in reducing errors and discrepancies in inventory valuation, which often lead to misstatements of COG. Accurate data helps identify unnecessary handling or transportation costs that could be optimized or eliminated, thus lowering the final COG.

Potential Savings from RFID Implementation

The deployment of RFID can generate considerable cost savings for ASCI. Primarily, these savings stem from labor reductions, improved inventory accuracy, and decreased errors. Bob Tibmen estimated that RFID could eliminate one or two positions involved in loading and processing, directly reducing personnel costs. Given labor costs in remote Alaskan operations, these reductions translate into significant savings annually.

Additionally, RFID minimizes manual inspection and barcode scanning, which not only cuts labor costs but also decreases processing times. Faster throughput enhances overall supply chain responsiveness, reducing inventory holding periods and associated costs.

Inventory accuracy improvements via RFID can lead to fewer stockouts or overstock situations, reducing costs linked to emergency procurement or excessive safety stock. The enhanced visibility also enables proactive maintenance of supply chain flows, preventing delays and optimizing transportation schedules, which ultimately lowers transportation expenses.

Finally, RFID data can support detailed cost analyses, highlighting inefficiencies and opportunities for process improvements. Over time, these insights help ASCI continuously refine their operations, yielding cumulative cost savings and operational efficiencies.

Conclusion

RFID technology offers a transformative opportunity for ASCI to enhance visibility across its supply chain, optimize costs, and improve operational efficiencies. For Bob, orchestrating a well-planned implementation with pilot testing, stakeholder engagement, and continuous evaluation is essential. Scott and his management team should leverage RFID data not only for immediate cost savings but also for strategic decision-making that aligns with broader corporate goals. Crucially, RFID can refine the calculation of the true cost of goods by enabling precise tracking of procurement and logistics expenses, leading to better pricing and profit management. While initial investments may be significant, the long-term gains in transparency, accuracy, and cost reductions position RFID as a vital component in ASCI’s supply chain modernization efforts.

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