báo cáo kinh tế quốc tế - đại học ngoại thương Analyzing supply chain of vietnam beverage

FOREIGN TRADE UNIVERSITY
SCHOOL OF ECONOMICS AND INTERNATIONAL BUSINESS

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GRADUATION THESIS
Major: International Business Economics
ANALYZING SUPPLY CHAIN OF VIETNAM
BEVERAGES INDUSTRY
Full name
Student ID
Class
Cohort
Instructor

:
:
:
:
:

Le Thi Thu Trang
1511150128
English 25 – High-quality Class
54
Asso. Prof. Dr. Trinh Thi Thu Huong

Hanoi, June 2019


TABLE OF CONTENTS

3


4

LIST OF ACRONYMS
CRM
SRM
ISCM
RFQ
GDP
SOEs
FDI
CSD
RTD
M&A
VBA
ERP
APS
EAI
BPA
3PL
4PL
EOQ
POQ
USD

Customer Relationship Management

Supplier Relationship Management
Internal Supply Chain Management
Request For Quote
Gross Domestic Product
State-owned Enterprises
Foreign Direct Investment
Carbonated soft drinks
Ready-to-drink
Merges and Acquisitions
Vietnam Beverages Association
Enterprise Resource Planning
Advanced Planning and Scheduling
Enterprise Application Intergration
Business Process Automation
Third-party Logistics
Fourth-party Logistics
Economic Order Quantity
Production Order Quantity
United State Dollar


5

LIST OF PICTURES
Picture 1.1: Structure of supply chain
Picture 1.2: Model of manufacturer storage with direct shipping
Picture 1.3: Model of manufacturer storage with direct shipping, in-transit
merge
Picture 1.4: Distributor storage with carrier delivery
Picture 1.5: Distributor storage with last-mile delivery

Picture 1.6: model of manufacturer or distributor storage with customer
pickup
Picture 2.1: Vietnam beverage distribution network
Picture 2.2: Relationship between objects participating in transportation
network


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LIST OF FIGURES
Figure 2.1: Vietnam yearly population, 2015-2020f
Figure 2.2: Nominal GDP and GDP growth in Vietnam, 2015-2022f
Figure 2.3: Nominal GDP per capital in Vietnam, 2013-2022f
Figure 2.4: Beverages consumption in Vietnam, 2015-2022f
Figure 2.5: Beverages revenue in Vietnam, 2015-2022f
Figure 2.6: Non-alcoholic drinks consumption in Vietnam, 2015-2022f
Figure 2.7: Non-alcoholic drinks revenue in Vietnam, 2015-2022f
Figure 2.8: Alcoholic drinks revenue in Vietnam, 2015-2022f
Figure 2.9: Alcoholic drinks consumption in Vietnam, 2015-2022f


7


8

INTRODUTION
1. Rationale
Recently, the Vietnam Beverage industry (refers to as Vietnam Beer – Alcohol
- Beverage industry) has been one of the industries that make important

contributions to Vietnamese socio-economic development. Vietnam is currently
rated as one of the markets with potential consumption of beverages. According to
EU –Vietnam Business Network, by 2020, the beverage consumption is forecasted
to be over 109 billion liters. The industry is characterized by a growing population
as well as a rising number of middle income individuals.
For beverages in general, ensuring of quality and quantity of products in the
process from input materials to delivering to final consumers is always a difficult
problem for individuals and businesses. Therefore, Vietnamese beverage companies
need to find a partner that provides logistics services and supply chain, meeting all
the strict requirements of beverage industry. Moreover, foreign beverage companies
have involved and expanded to Vietnam beverage market, creating a competitive
environment. It has put local beverage manufactures into certain difficulties due to
limited budget and expertise in establishing brand names and supply chain.
Besides an increase in population, Vietnamese consumers are increasingly
health-conscious. It requires manufacturers starting thinking market offerings,
which calibrate towards heathier product portlio such as products of natural origin,
fruit juices or herbal teas. The development of the tourism industry and retailing
network in Vietnam also plays an important role in growth of beverages industry as
they created further demands for high-end drink segments as well as improved the
availability of beverage product lines through modern trade channels.
According to evaluation of Vietnam Beverage Association (VBA), recently,
most of companies in the beverage industry have their own distribution channels.
However, the connection between businesses and businesses, between manufacturer
and distributors to supply products to the market is very limited. To compete with
various foreign beverages corporations, develop production and circulation of
goods, Vietnam beverage companies. Vietnamese beverages enterprises need to join
hands to complete an integrated supply chain between production and distribution


9

to meet fully and promptly consumer demands. Starting from that fact, and through
the process of studying at Foreign Trade University and searching information of
Vietnam beverage industry, I desire to choose the topic "Analyzing supply chain of
Vietnam beverages industry” as my graduation thesis topic.
2. Literature review
Analyzing the supply chain of corporations, pointing out the situation and
proposing some recommendations have not been a new topic in recent years,
especially when the supply chain increasingly represents its important role in
minimizing costs, maximizing profits and enhancing competitiveness for
businesses. Therefore, the topic of supply chain is more and more interested,
analyzed and selected as the topic of research on dissertations and specialized
topics. In recent years, there have been many research topics about supply chain
analysis of businesses in general and enterprises in food and drink in particular.
Some reseaches are introducted as follows:
Firstly, Sunil Chopra, Peter Meindl (2007) provided an understanding of all
the key areas which are the strategic role of a supply chain, the key strategic drivers
of supply chain performance and analytic methodologies for supply chain analysis;
and their interrelationships.
This book gives us a conceptual understanding of supply chain and the various
issues that must be taken into account when designing, planning and operating a
supply chain. The authors have researched and introduced the strategic importance
of supply chain design, planning and operation for every firm. Within the strategic
framework, they have conveyed how the supply chain performance’s drivers
(facilities, inventory, transportation, information, sourcing and pricing) can be used
on conceptual and practical levels in a supply chain. This book provides readers
with practical managerial levers and concepts that may be used to improve supply
chain performance. Moreover, the authors present an understanding of analytic
methodologies, which are used in each managerial context and support the
managerial levers for improvement. The strategic frameworks and concepts
discussed in the book are tied together through a variety of examples and case

studies to illustrate the diversity and importance of the supply chain in the global


10
economy. Therefore, in general, this book and its researches are the theoretical basis
for academic audiences to complete their research and for practitioners (firms and
organizations) to develop their supply chain and supply chain management. In
particularly, thank to this book, I can complete chapter 1 of my dissertation.
Secondly, in the report of Vietnam beverage industry in 2016 by EU-Vietnam
Business network, the author analyzed overview of Vietnam’s economy by
providing indicators and data of population, geography, gross domestic products,
foreign direct investment and Vietnamese consumption habits from 2013 to 2016,
and then point out the direction of Vietnamese economy and the movement of
industries. Moreover, it focuses on analyzing Vietnam beverage industry: current
status, analysis of different drinks sectors’ development, market trends and some
key growth drivers. It has provided knowledge and information of not only
consumers and distributors but also regulatory and legal framework at Vietnam
beverage market.
Through collecting activities data of Vietnam beverage industry and then
analyzing them, this report has introduced the overview of Vietnam in general and
overview of the beverage industry in Vietnam in particular, given some case studies
and competition analysis of Vietnam beverage companies. This is basis for firms
and organizations to research and develop their products as well as plan the
strategies to take the competitive advantage in the global economy.
Thirdly, Handfield and Bechtel (2002) introduced a model to build key
relationships between suppliers and buyers based on credibility, suppliers forced to
invest in financial resources and human resources, buyers must consider contracts
carefully to control the dependent level related to relationship. The model that
presents the dependent variable is the responsibility of the members in the supply
chain, through independent variables, the level of trust and dependence on the

buyer, the contract, the level of investment in fixed assets, human resources. The
authors also assume that all dependent variables are positively related to supply
chain responsibility except the buyer's dependence through nine hypotheses. The
results show that even in cases where demand exceeds supply capacity, scarcity


11
occurs and then the trust can improve supplier responsibility and enhance
cooperation in the supply chain.
Finally, Le Thuy, in her article in 2017, talked about a high increase in
inventory and fierce competition in Vietnam beverage market. Vietnamese beverage
enterprises are in increasingly difficult situation, while the beverage market is still
considered a fertile land of foreign businesses. It also mentioned difficulties of
Vietnam beverage enterprises while the battle for market share in the beverage
market has not shown signs of cooling down with over 1,800 beverage
manufactures. Therefore, the problem for Vietnam beverage corporations is that if
they do not improve product’s quality and design, find their own direction, it is
difficult for the domestic beverage industry to exist. Moreover, there are some other
articles gave current information of Vietnam beverage industry, its difficulties and
problems, and plans of Government and Corporations to complete its supply chain.
Therefore, there were load of research that approached the supply chain in
different directions. However, according to results of books, reports and articles,
most of them mentioned current situation and future challenges of Vietnam
beverage enterprises, there are still some spaces to research and suggest
recommendations for its supply chain. All above knowledge and data mentioned are
the theoretical basis of my research and study of supply chain in Vietnam beverage
industry.
3. Objective and tasks
The topic "Analyzing supply chain of Vietnam beverages industry” is done
with the objective of analyzing current status of and suggest recommendations to

improve supply chain of Vietnam beverage industry. In order to achieve the above
objective, the thesis determines some detailed tasks as follows:
− Contribute to systematize the theoretical basis and practical basis of the supply
chain in general and more specifically about Vietnam beverages industry.
− Analyze supply chain of Vietnam beverages industry and potential development of
supply chain design in Vietnam beverage industry.
− As a basis for future researches on supply chain and supply chain management of
corporations or industries.


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4. Subject and scope
Subject of the thesis is supply chain of Vietnam beverages industry. The thesis
clarifies the basics of supply chain, how to design, operate and develop supply
chain of Vietnam beverage industry from 2015 to 2018.
5. Methology
The thesis is carried out based on not only the manipulation of theories and
perspectives of the world's experts on researching and developing supply chain but
also perspectives and guidelines of Vietnam Government of the development of
beverage corporations. The thesis will use methods of data collection, analysis,
synthesis,

statistics,

comparison,

interpretation,

explanation,

induction

in

combination between theory and practice.
6. Research structure
The thesis consists of pages, tables, pictures, in addition to the opening words
and references list, the main content of the thesis is divided into three chapters:
Chapter 1: Theoretical basis of the supply chain and Vietnam beverages
industry
Chapter 2: The status of supply chain activities in Vietnam beverages
industry
Chapter 3: Recommendations to improve supply chain of Vietnam
beverages industry
In process of researching my graduation thesis, I would like to send my
sincere appreciation to Assoc. Prof., Dr. Trinh Thi Thu Huong, kindly guided and
supported me to complete this thesis.


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CHAPTER 1: THEORETICAL BASIS OF SUPPLY CHAIN
1
1
1

Overview of supply chain
Introduction to supply chain
Definition
About fifty years ago, it was obvious that if the company produces some

items, they would be purchased and consumed eventually. The pace of changes of
habits and technology was slow enough to allow any product in almost any quantity
to be sold eventually.
However, time has changed. The information technology accelerated, markets
globalized, political economies stabilized, boundaries opened and the world
suddenly became smaller and flatter. Consequently, increasing number of
multinational companies appeared and started competing on a global basis. Once
they realized that their survival is under threat, they began to modify. The products
have changed quickly, followwing the trends in technology and consumers’ taste. As
a result, the habits of consumers are changing quickly and tending to be elusive.
This made the companies to be more careful in planning and organizing, since the
products are becoming obsolete very quickly. In that situation, it is paramount for
each company to stay innovative, lean and timely responsive to complication in the
market. In order to take competitive advantages, companies have to take into
account a lot of factors with purpose of minimining the cost and maximizing profit.
It requires them to pay more attention on flow of material movement; process of
production, design, packaging, distribution and storage; effective method of
collecting customers’ data and demand. There is no choice for companies but
building their own supply chain. Consequently, continuous development of supply
chain and techniques of managing it all is widely promoted all over the world.
In a typical supply chain, materials are purchased from one supplier or more,
the parts are produced at one factory or more, then final products are delivered to
warehouse to store in the intermediate stage and finally to retailers and customers.
The supply chains have to consider the interaction of different links in the supply
chain. The development and functioning of Supply Chains have become important
subjects for academician with a resultant increase of definitions and phrases.


14
“The supply chain is a chain or a process that begins with raw materials until

final products and services are delivered to the end consumers. A supply chain is a
network of facilities and distribution options that performs the functions of
procurement of materials, transformation of these materials into intermediate and
finished products, and the distribution of these finished products to customers.
Supply chains exist in both service and manufacturing organizations, although the
complexity of the chain may vary greatly from industry to industry and firm to
firm” (Ganeshan and Harrison, 1995).
In term of structure, supply chain is a network of organizations involved in
stages, its diffirent downstream or upstream activities, to create value for the
products and services that satisfies customsers’ demand. (Hartmut Stadtler,
Christoph Kilger, 2000). In other words, supply chain includes all entities that both
directly and indirectly participate in meeting consumers’ demand. In term of broad
understanding, a supply chain includes two or more separate legally-established
businesses which are linked by material flow, information flow and financial flow.
The entities involved in the supply chain include producers, vendors, warehouses,
transportation companies, distribution centers, and retailers. In each separate
organization, supply chain also includes all functions related to receive, handle with
order. Otherwise, the concept of supply chain is also applied for multinational
corporations and their subsidiaries in different countries in the world. The effective
combination of below flows is a big challenge for multinational corporations;
however, process of making decisions in these corporations is easier due to the same
senior manager apparatus.
On the other hand, considering the supply chain in the form of a circulation
flow, the supply chain is a network of closely coordinated organizations to improve
flow of information and material between supplier and customers at the lowest cost
with the fastest speed (Manish Govil, Jean Marie Proth, Supply chain design and
management, Academic press, 2002). The core objective of a supply chain is
meeting customers’ demand in progress of making profit for itself. Customer is an
essential factor in a supplu chain. Activity of a supply chain begins with a customer
demand and does not finish until customers make payment of their order. The use of

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the term “network” shows that businesses participating in the supply chain are not
only companies carrying out mutual activites but also ones competing with each
other in providing the same product or service. Supply chain is a unified entity with
a unique development strategy.
Althought there are many different definitions and phrases of the supply chain,
in most generally, the supply chain is a group of three or more organizations direclty
connected by one or more downstream and upstream of products, services, finance
and information from a supplier to its customers.
2

Characteristics
Supply chains in the world have had diversified structure, each of them aims
to provide customers with different values, but they have still shared the
characteristics of a typical one. If we are looking for a basic feature of a supply
chain, it shall be balance and interaction between responsibility and efficiency.
Responsibility is the ability to respond to activities such as ensuring short delivery
times, highly innovative product design, and high quality of service. Therefore, it is
often accompanied by high costs. For example, to meet orders in different
quantities, production capacity must be enhanced, which means an increase in costs.
Increasing costs leads to a second concept of supply chain’s efficiency. The
efficiency is the cost of production and distribution. Increasing costs shall reduce
efficiency, in other words, all strategic choices with purpose of enhancing
responsibility shall lead to a reduction in the efficiency of the supply chain.
Another characteristic of current supply chain is the most powerful member
will impose strategy on supply chain. Exception for powerful members in the
supply chain, it is difficult to point out a supply chain whose members cooperate
with fair terms and conditions.

In the supply chain, the movement of physical flows and information flow is
also a distinctive feature. The information flow moves in the opposite direction of
the supply chain while the physical flow moves downstream. Information is
transmitted from customers to retailers, manufacturers, transport service providers,
material suppliers. That is how a production system still works for decades. What is
different in the supply chain is that information is transmitted to members one at a

3

time and it is necessary for their own decision-making process.
Classification


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There are many criteria to classify the supply chain, however in all of them,
there are two criteria that are considered the most basic and typical. The first
criterion is based on time calculation to carry out activities related to consumers’s
demand. In addition, the second one is based on the structure of the supply chain.
a) First criterion
Based on time calculation to carry out activities related to consumers’ demand,
the supply chain is divided into three categories: push supply chain, pull supply
chain and push-pull supply chain.
i) Push supply chain
In push supply chain, all decisions, related to production and distribution, are
based on long-term predictions. Typically, manufacturerons just rely on retailers’
orders to forecast customer demand. Therefore, push supply chain takes a long time
to respond to market changes. Bullwhip effect is common phenomenon in the push
supply chain, which fluctuations in orders that producers receive from retailers and
warehouses are often larger than actual ones in consumer demand. It often leads to
false predictions about actual demand of products, leading to inaccurate production

plans, increasing inventory shall link to an increase in total costs and difficulty in
resources management.
ii)

Pull supply chain
Different from the push supply chain, in pull suppy chain, because production
and distribution activities are dominated by demand factors, they are tied to the
actual needs of customers. In the pure pull one, corporations shall maintain
inventory at level of zero and only produce when there is an order. This type of
suppy chain really appeals to producers since they can keep inventory at zero,
reduce inventory cost, reduce the impact of Bullwhip effect and take a chance to
increase service level. In fact, however, the construction and operation of the pull
supply chain is difficult as the time required for an order is too long, leading to
obstacles in responding to information about customer demand. The pull one does
not take advantage of economics of scale, the batch production of many items and
the efficient delivery is difficult to achieve.

iii)

Push-pull supply chain


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In this kind of supply chain, some stages are driven by push strategy, often in
the early stages of the supply chain, while the rest are developed with pull strategy.
In push-pull supply chain, the manufactures produce orders (build to order). It
means that inventory components are managed based on prediction results but final
products are made corresponding to the numbers of orders. The process of pushing
in the supply chain is the part of the operation of the component manufacturers that
provide assembly; the pulling process starts from assembly operations and is based

on the actual demand of customers. In fact, demand for a type of component is to
gather the demand of many finished products that use it. The uncertainty of the
demand for components will be smaller than the demand uncertainty for the final
product, which ensures a certain reduction in the number of inventory.
b) Second criterion
Based on the structure, the hard supply chain is devided into four categories:
build- to-stock, configure-to-order, build-to-order, and engineer-to-order.
i) Build-to-stock supply chain
The final products are manufactured with the standard amount of materials
before orders. Build-to-stock supply chain has the shortest response time to
customer requirements. Customers make an order and are met almost immediately
from the warehouses or retail stores. Because customers appreciate the ability to
respond quickly, products randomly purchased by customers are often provided
through the build-to-stock supply chain. However, it is lack of selectivity;
customers just choose the available products on shelves that are supplied by
manufacturers. Important parts and components such as aircraft components are
often supplied under this type of supply chain. Another disadvantage of the blockto-order is that products produced are based on prediction, so all errors in prediction
at any stages affect the whole supply chain. If products are in an outdated or
defective state, it is mandatory to recover it at a high cost. Large amount of
inventory shall take business into a risk situation, lead to an ineffective business and
is costly to reproduct. In case of low amount of components reserve, order
execution time of the entire supply chain will be prolonged.
ii)

Configure-to-order supply chain


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The configure-to-order supply chain produces components first according to
the push process and carries out orders according to customer requirements. Thus,

the advantage is that producers will provide diversified choices for customers;
otherwise, they have to sacrifice the ability to execute orders immediately. For
example, in the automobile industry, manufacturers and distributors are in the
process of completing the Configure-to-order suppy chain in order to provide
customers more choices about color and component combinations. Despite of
driving away immediately after placing an order customers have to wait for the
product to be manufactured according to their demand. The key issue in configureto-order supply chain is response time. In comparison with Build-to-store supply
chain, configure-to-order appear delays, the manufacture is not bound by the
finished product until they receive an order. Total amount of inventory shall be
significantly reduced due to abundance of components or modules lower than final
products. Manufacturers shall only need to anticipate demand and make a plan at
component level, minimizing uncertainty.
iii)

Build-to-order supply chain
In the build-to-order suppy chain, customer requirements are concerned from
the beginning of the production process. Products in supply chain are personalized
to the highest level. Build-to-order is committed to providing separate components
to every order, sometimes upstream along the supply chain. When requirements are
established, the supply chain determines the number of products and time of
delivery. Customers in the build-to-order supply chain must wait the entire time to
receive products from the production of components to assembly of finished
products. Therefore, products in build-to-order supply chain are usually
manufactured after receiving many orders to avoid fluctuations in production rates
and demand. Build-to-order supply chain helps producers and distributors to minize
risks and reduce inventory.

iv)

Engineer-to-order supply chain

Products are manufactured and assembled with separate components and
designs. Products in this supply chain are highly individualized are often used for


19
specific needs. It is a relatively long time to carry out orders. In addition, logistics
acitivity and planning are often complicated because they are associated with a
single order.
4

Objectives and roles of supply chain
The objective of the supply chain is effective and efficient all over the system;
the total cost of the entire system from transportation, distribution to raw material
inventory, production inventory and finished products, needs to be minimized. In
other words, the goal of every supply chain is to maximize the value created for the
entire system. The value of the supply chain is the difference between the value of
the final product to the customer and the supply chain's effort to meet customer
demand. For most commercial supply chains, value is closely related to supply
chain benefits, the difference between the revenue that customers pay for the
company to use products or services and the total cost of whole supply chain. For
example, customers who buy computers from Asus have to pay USD 1,500,
representing the revenue that the supply chain receives. Asus and other stages of the
supply chain incurred costs to collect information, produce parts and products, store
them, transport, finance transfers. The difference between the USD 1,500 that
customers pay and the total costs incurred in the supply chain of computers from
production to distrubution to customers is supply chain profits. The profitability of
the supply chain is the total profits shared throughout the chain. The higher the
profitability of the supply chain is, the greater the success of the supply chain is.
The success of the supply chain should be measured from the profit perspective of
the entire supply chain, not at its each individual stage.

An efficient supply chain is really a competitive advantage of the companies,
which decide their success or failure. The quality of the supply chain greatly affects
the financial results as well as other competitive advantages of the business such as
cost, quality, order fulfillment time and flexibility. Thanks to the supply chain, raw
materials are imported at the right time, in the right quantity, significantly reduce in
inventory; final products are delivered to consumers in a reasonable time, at the
lowest cost. Thanks to the information flow in the supply chain, producers get
feedback from customers, helping forecasts to be more accurate; develop effective


20
production plans, improve quality of current products and service as well as design
new product. The sharing of information and close cooperation among members
helps to enhance the value of the supply chain and each company’s benefit.
1.1.1. Comparision between supply chain and value chain
The value chain of a business according to Michael Porter's statement includes
main and supporting activities that create a competitive advantage when
appropriately configured. An effective value chain will generate many profits. We
can see the connection between supply chain and value chain. In general, supply
chain and value chain are a combination of many organizations to meed customer
demand. They are extensive business models with unified business processes to
promote products and finances in a certain direction. However, there are basic
differences between supply chain and value chain.
Firstly, based on concepts, while the value chain consists of main and
complementary activities, the supply chain only includes key activities or value
chains’ operations. The supply chain can be understood as a component of the value
chain. Secondly, when looking at the value chain and the supply chain as a set of
physical flows and information flows, the value chain is only within the enterprise
or, more broadly, includes suppliers, manufacturer, distributors, retailers, but
exclude customers. In contrast, the supply chain focuses on both internal and

external factors, in other words, customers is a prerequisite factor in supply chain.
Lastly, whereas the value chain aims to generate profits and increase the benefits of
the entire system, the supply chain strives for point toward minimizing costs (such
as cost of transportation, distribution, inventory, warehouse, and others).
1.2. Structure of a supply chain
1.2.1. Main factors in the supply chain structure
In order to take advantages from supply chain and supply chain management,
each corporation has to consider for factors, which capture a supply chain, are
facilities, inventory, transportation and information. In each factor, manager has to
balance between efficiency and responsibility. Impacts of all these factors will creat
a balance of supply chain and determine whether that supply chain strategy is
satisfied with competitive strategy of corporation.


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Picture 1.1: Structure of supply chain

(Source: />1.2.1.1.

Raw materials
Raw materials are one of important and basic factors in a supply chain. It is
said that raw materials and suppliers selections are the very first step to begin a
supply chain. Manufacturers shall purchase and store those materials to serve their
production process. There are some characteristics of raw materials in general. the
raw materials shall change in appearance, not remain their original state when
putting into production. The materials are directly involved in complete production
process. The entire value of input materials is transferred directly into the finished
products which are basis for estimating the cost and price. Decisions related to raw

1.2.1.2.

materials are often their quality, quantity and specifications.
Manufacturing process
The manufacturing process is the most essential step in a supply chain. This is
a complete process in which the result is finished products to be sold in market. The
production process starts from delivery and distribution of raw materials to factories
to manufaction of many different products. There are various factors involved in
this process such as main materials, natural resources, machinery, equipment,
scientìic and technological applications. All these factors form an automatical


22
system in production and employees or worker just need to start, monitor and
1.2.1.3.

control whole production process through technology.
Facilities
Facilities are supply chain locations where products are stored, assembled or
manufactured. Firms must decide whether production facilities will be flexible,
dedicated, or a combination of the two. Two common types of facilities are
production sites and storage sites. No matter the funtions of facilities in a supply
chain are, the decisions related to locations, productivity, flexibility of facilities still
play an important role in quality of supply chain. Decisions related to facilities
include those about warehouse network, and distribution network.

1.2.1.4.

Inventory
Inventory encompasses all raw materials, work in process, and finished goods
within a supply chain. The inventory belonging to a firm is reported under assets.

Changing inventory policies can dramatically alter the supply chain’s efficiency and
responsiveness. Inventory affects the assets held, the costs incurred, and
responsiveness provided in the supply chain. High levels of inventory in an apparel
supply chain improve responsiveness but also leave the supply chain vulnerable to
the need for markdowns, lowering profit margins. A higher level of inventory also
facilitates a reduction in production and transportation costs because of improved

1.2.1.5.

economies of scale in both functions.
Transportation
Transportation moves products among different stages in a supply chain.
Flexible transport with a variety of both means of transport and transported products
contribute to increase responsibility, but decrease efficiency of this supply chain.
Faster transportation is more expensive but allows a supply chain to be more
responsive. As a result, the supply chain may carry lower inventories and have
fewer facilities. The appropriate choice of transportation allows a firm to adjust the
location of its facilities and inventory to find the right balance between
responsiveness and efficiency. Means of transport selected by corporations will
affect on facilities and inventory. Decisions of transportation include decisions
about means of transport, transportation network, schedule and outsourcing.

1.2.1.6.

Information


23
Information includes prediction and analysis of data related to facilities,
inventory, transportation and customers. Information is considered as a key factor in

a supply chain because it not only have great impacts on entire factors but also take
a chance to design a supply chain, which has both responsibility and efficiency. For
example, a pharmaceutical company based on customer demands produce and store
drugs that meet customer requirements. This obviously enhances responsibility of a
supply chain. Morever, information of these demands helps corporations to forecast
correct quantity manufactured to minimine cost and improve efficiency of that
supply chain. Decisions related to information are ones of information system,
sharing information, overall plan and forecast, valuation and budget management,
assistive technology.
1.2.2. Components of supply chain network
1.2.2.1. Procurement of raw materials
Procurement of raw materials is a process in which materials and services for
the maintenance and development of the company’s productions are purchased from
reputable suppliers and are provided under agreed terms and conditions. Its purpose
is that it has to create the maximum value for a company by negotiating time and
cost with the suppliers.
a) Determination of raw materials demand
Determination of raw materials demand is the very first and fundamental step
for the manufacturers. Depending on their each purpose of production and general
objectives, decisions of purchasing raw materials are various and not always just
simple. In order to keep going to next steps in the procurement process, the
manufacturers need to identify clearly which and how many raw materials they
want to purchase.
b) Selecting suppliers
After determining of raw materials demand, the enterprises need to research
and select their suppliers. With raw materials with frequent demand, manufacturers
shall research and evaluate more to select the best source of supply; with new raw
materials, they need to consider carefully choosing the potential suppliers. There are
four main steps to select a final supplier.

24
The first step is cultivating suppliers’ information and data. Manufacturers can
review archived records of suppliers (if any); research information on internet,
newspapers, magazines, and information centers; conduct some surveys, interview
suppliers, other users of materials or consult experts. Based on cultivated
information and data, manufacturers shall handle, analyze, and evaluate advantages
and disadvantages of each supplier; then they compare with the standard set and
make a list of qualified suppliers. The process of evaluating and re-evaluating shall
be repeated one or more times until manufacturers select their official suppliers. The
third step is negotiating and signing contracts. Manufacturers must carry out
carefully this step because it is directly related to manufacturer’s input cost. After
signing the supply chain contract, manufacturers and their suppliers need to pay
attention to contract implementation process. The manufacturers always monitor
and re-evaluate their suppliers to decide whether their contracts shall be long-term
or just short-term.
c) Making and implementing orders
After choose the suppliers, the manufacturers shall make orders or supply
contracts. A signed order has to include the information such as buyer’s name and
address, order number, time and date for making order, supplier’s name and address,
raw materials’ names, quality, specifications and quantity, and time and place of
delivery. When an order is accepted, manufacturers and their suppliers shall sign
contracts with agreed terms and conditions related to contract objects (types of
products, quality, volume, agreed price, currency); quality, specifications or
technical requirements including price, guarantee, delivery conditions, payment
methods, and other agreement. After signing contracts, two parties shall carry out a
series of corresponding tasks and complete their responsibilities in contracts.
Suppliers need to deliver the agreed raw materials to manufacturers at the most
conditions in which delivered products have to meet all requirements of contracts.
Manufacturers shall receive the goods, check supplier’s notes, supervise unloading

from transport vehicles, inspect the delivered goods and sign the necessary
documents, and re-evaluate the whole process of supplying products.
d) Warehousing, storing to serve for production process


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The last step of process of purchasing raw materials is warehousing, storing to
serve for production process. Based on nature of each type of materiala and its
storage requirements, raw materials need to stored under suitable conditions. It
affects on enterprise’s decisions of inventory network, warehouses systems as well
as transportation network to answer the questions when, where and how raw
materials are transfer into final products through production process.
1.2.2.2.

Manufacturing
Production process is the most important activity in the whole supply chain. it
is result of strategy planning and suppliers seleting. The activities in the production
process shall create main value and benefit of a beverages enterprise. Production
involves supply chain capacity to produce and store products. Important means in
production are factories and warehouses. Decisions related to manufacturing depend
on market’s demand with time and volume of products so that manufacturers can
balance their responsiveness and efficiency. If the factories and warehouses are
established with large capacity, manufacturers have the flexibility and quick
response to the mass of products. However, the large capacity of factories and
warehouses can create more organization and operation costs for manufacturers.
Those factories are built according to the following two methods to facilitate
production process. The first method is focusing on manufacturing; which means
that one factory specializes to product only one product line so that it can carry out
many different actitivies from manufacturing components to linking those
components to finished product. The second method is focusing on function, which

means that one factory carry out one link or components in production process. The
second method can be applied to produce various product lines at the same time.
Production activity includes three main activities that are product designing,
production

process

planning

and

management

of

production

facilities.

Requirements of production designing are related to satisfactory about characteristic
of products in comparison with customers’ demand. Manufacturers need to plan a
production process, figure out the most reasonable production time and place to
satisfy timely customers’ demand. Management and operation of production
facilities are the most important step in production process to creat the final
products