The development of a logistics management model for a growing timber company in South Africa

Ehlers, Renier (2007-12)

Thesis (MBA)--Stellenbosch University, 2007.

Thesis

ENGLISH ABSTRACT: HM Timber operates five formal sawmills in South Africa, situated around the towns of Tzaneen, Sabie, Mthatha and Kokstad. The Mills in the Kokstad area experience unacceptable lead times during the months of April/May and November/December, when the demand for timber increases and the availability of transport in the area decreases. This problem is expected to intensify with the addition of HM Timber’s new Plywood plant just outside the town of Kokstad. The plywood also adds another dimension to the distribution problem in that the market generally demands smaller deliveries more often. With only one Distribution Centre in Cape Town, HM Timber is not geared to service this market in the rest of South Africa. The main objective of this research report is to determine and define the key success factors in the transport and distribution of timber products and how these factors can be integrated into various strategic options that will address HM Timber’s current distribution problems. A review of the literature summarises the latest trends in modern supply chain management. Supply chains consist of various businesses that aim to optimise all their operations and supply customers with good quality products and excellent service at affordable prices. Competition in modern day business increasingly occurs at supply chain level and the success of individual organisations therefore depends on the success of the entire supply chain. The focus is thus on collaboration and jointly developing supply chain strategies. The literature review ends with a summary of the most important aspects in the effective and efficient management of Distribution Centres. Analyses of HM Timber’s logistics operations reveal that various factors contribute to their transport problems during the months of April/May and November/December. These include the payment of rates that are not market-related, loading problems at the mills, a lack of coordination and the fact that HM Timber is not a contracted client and therefore not regarded a priority. The analysis also includes a discussion on the Western Cape Distribution Centre and the problems this facility is having with general administration, inventory management and the effective use of IT systems. A range of strategic options is available to HM Timber that will allow the company to improve its overall management of logistics. The options investigated include own operations as well as outsourced 3PL and 4PL solutions. To assist HM Timber in selecting the best logistics option, three models are presented to evaluate the various alternatives and to assist in deciding on the best option. The first model evaluates the costs associated with different transport options, while the second model allows the user to compare the costs of different Distribution Centre options. Finally, a multi-criteria decision model is presented that will assist HM Timber in selecting the best option for each mill and region. With the VISA transport model, Manline is rated the best option for all Weza and Singisi’s deliveries. Manline is also rated the best for Langeni’s long-distance deliveries, while HM Timber’s own fleet is rated the best option for Langeni’s local deliveries. Results from the Distribution Centre (DC) models indicate the cost structures to be sensitive to changes in the premiums achieved and changes in the market e.g. the customer base, product types, and volumes sold. The Johannesburg and Port Elizabeth DCs show acceptable EBIT margins based on the projected sales, but the projected EBIT margins for Durban are less than 2 %, making the Durban DC a less than attractive business proposition. A direct distribution solution is proposed for the KwaZulu-Natal area, whereby multiple deliveries are made directly from the mills as well as the new plywood plant in Kokstad. In conclusion, eight factors are identified as key to the successful transportation and distribution of timber products. HM Timber rates very well against the majority of these factors, but needs to focus on a number of issues to be able to maintain their high levels of customer service. These include investing in a dedicated logistics department, improving internal and external collaboration and coordination efforts and improving the efficiency of a number of operational and information technology systems.

AFRIKAANSE OPSOMMING: HM Timber bedryf vyf formele saagmeulens in Suid-Afrika wat geleë is in die omgewings van Tzaneen, Sabie, Mthatha en Kokstad. Die meulens in die Kokstad omgewing ondervind onaanvaarbare vertragings in aflewerings gedurende April/Mei en November/Desember wanneer die aanvraag na houtprodukte toeneem en die beskikbaarheid van vervoer in die Kokstad area afneem. Hierdie probleem gaan na verwagting groter word namate die laaghoutvolumes toeneem. ‘n Verdere uitdaging in die verspreiding van laaghout is die feit dat kliënte oor die algemeen kleiner hoeveelhede, meer gereeld aankoop. HM Timber bedryf slegs een Verspreidingsentrum in Kaapstad en is dus nie gereed om ander dele van Suid-Afrika te bedien nie. Die hoofdoelwit van hierdie navorsingsverslag is om te bepaal watter faktore noodsaaklik is om suksesvol te wees in die vervoer en verspreiding van houtprodukte. Die doel is verder om te bepaal hoe hierdie faktore in verskillende strategiese opsies geïntegreer kan word ten einde HM Timber se huidige verspreidingsprobleme aan te spreek. ‘n Studie van die literatuur gee ‘n opsomming van die nuutste tendense in die bestuur van moderne verskaffingskettings. Verskaffingskettings bestaan uit verskeie besighede wat ten doel het om al hul aktiwiteite te optimiseer en teen bekostigbare pryse uitstekende diens aan hulle kliënte te lewer en produkte van hoë gehalte te voorsien. Kompetisie in die moderne besigheid vind meer en meer plaas tussen die verskillende verskaffingskettings en die sukses van enige individule organisasie is dus afhanklik van die sukses van die algehele verskaffingsketting. Die fokus is dus op samewerking en om gesamentlik strategieë vir die verskaffingsketting te ontwikkel. Die literatuurstudie eindig met ‘n opsomming van die mees belangrike aspekte in die effektiewe en doeltreffende bestuur van verspreidingsentrums. Ontleding van HM Timber se logistieke aktiwiteite toon dat verskeie faktore verantwoordelik is vir die maatskappy se vervoerprobleme tydens April/Mei en November/Desember. Dit sluit in die betaling van nie-markverwante tariewe, laaiprobleme by die meulens, ‘n tekort aan koördinasie en die feit dat HM Timber nie ‘n kontrak met enige vervoermaatskappy het nie. Die analise sluit verder ‘n bespreking van die Verspreidingsentrum in Kaapstad in en die probleme wat hierdie fasiliteit ondervind met algehele administrasie, voorraadbeheer en die doeltreffende gebruik van inligtingstelsels. ‘n Reeks strategiese opsies is beskikbaar wat HM Timber instaat sal stel om algehele logistieke bestuur binne die maatskappy te verbeter. Opsies wat ondersoek word sluit in eie operasies sowel as die uitkontrakteer van die logistieke funksies aan 3PL en 4PL organisasies. Ten einde HM Timber te help om die beste opsie te kies, word drie modelle voorgestel wat gebruik kan word om die onderskeie alternatiewe te evalueer en die beste opsie te selekteer. Die eerste model evalueer die kostes wat geassosieër word met elk van die verskillende vervoeropsies. Die tweede model stel die gebruiker instaat om die kostes van verskillende Verspreidingsentrums te vergelyk. Die derde model is ‘n multi-kriteria besluitnemingsmodel wat HM Timber kan help om die beste opsie vir elke meul en elke streek te selekteer. Die VISA vervoermodel dui aan dat Manline die beste opsie is vir alle aflewerings vanaf Weza en Singisi. Manline word ook aangedui as die beste opsie vir Langeni se langafstand aflewerings, terwyl HM Timber se eie vloot steeds die beste opsie is vir Langeni se plaaslike aflewerings. Resultate van die Verspreidingsentrum-model dui aan dat die kostestrukture baie sensitief is vir veranderinge in die premies wat behaal word asook veranderinge in die houtmark, insluitend veranderinge in die kliëntebasis, die tipe produkte en die volumes wat verkoop word. Die model toon aanvaarbare winsgrense vir Verspreidingsentrums in Johannesburg en Port Elizabeth, maar die geprojekteerde winsgrens vir Durban is minder as 2 %, wat beteken dat ‘n Verspreidingsentrum in Durban nie ‘n goeie opsie is nie. ‘n Direkte verspreidingsoplossing word eerder vir die KwaZulu-Natal streek voorgestel. Hierdie opsie behels meervoudige aflewerings wat direk vanaf die verskillende meulens gemaak sal word. Agt faktore word uiteindelik geïdentifiseer as noodsaaklik vir die suksesvolle vervoer en verspreiding van houtprodukte. HM Timber vaar baie goed met die meeste van hierdie faktore, maar enkele punte moet aangespreek moet word ten einde huidige diensvlakke te handhaaf. Hierdie punte sluit in investering in ‘n toegewyde logistieke afdeling, verbetering van interne en eksterne samewerking en die verbetering van ‘n aantal operasionele- en inligtingstelsels.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/85166
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