Supply Chain Issues in the Venezuelan Manufacturing Industry at a Glance
Total Page：16
File Type：pdf, Size：1020Kb
Supply chain issues in the Venezuelan manufacturing industry at a glance (004-0267)
José Luis Giménez R., Instituto de Estudios Superiores de Administración, Caracas, Venezuela [email protected]
Natalia Castro, Instituto de Estudios Superiores de Administración, Caracas, Venezuela Abstract
Supply chain management continues to be a key competitive factor for firms with relatively important inbound and outbound flows. This paper, based on a sample of 30 Venezuelan manufacturing firms, analyzes the logistics practices currently used by these firms. Data has been gathered thanks to the questionnaire prepared for the fourth edition of the International Manufacturing Strategy Survey, a tool that periodically surveys manufacturing firms about their manufacturing and supply chain strategies, practices and performance. This IMSS edition has focused on industrial firms manufacturing machinery, electric and electronic devices, medical and optical equipment, all kinds of vehicles and, in general, metal parts and components. We have chosen the answers to the Supply Chain Management section to try to understand how Venezuelan firms are overcoming the difficulties associated to a non- friendly environment. Results show that logistics opportunities in Venezuela remain open as outsourcing, network integration and information technology are not yet fully used.
Venezuela
Fourth economy (behind Mexico, Brazil & Argentina) in Latin America, Venezuela continues to be highly dependent on the petroleum sector, accounting for roughly one-third of GDP, around 80% of export earnings, and over half of government operating revenues. However, manufacturing and oil refining industry represent about 25% of GDP, a figure rather stable for the last 20 years in spite of political and economic turbulences experimented by the country. Venezuela lays in the northern part of South America representing a key location for merchandising flow in the continent and very well placed as a pivot point vis-à-vis of commercial exchange with Europe. In order to transform these comparative advantages into competitive ones, logistics activities in Venezuela must improve a lot to match regional and international standards. However a country with huge oil resources, its road network has deteriorated in the past years, railroads and maritime transport are well below regional standards (CAF) and trucks and lorries are insufficient and highly depreciated making deliveries rather slow and unreliable.
Moreover, Venezuelan economic and social variables do not favour an adequate environment for global and even local competitiveness. Rankings from IMD (2005) and WEF (2005) place Venezuela in the last places between the surveyed countries.
Supply chain issues in Venezuelan industry
Sample and firms profile
Information analyzed in this paper was collected between March and October of year 2005 and includes 30 industrial firms ranging from small electrical transformers manufacturers to automotive assemblers. Respondents employ 325 persons in average with annual revenues of about US $ 15 million.
The “upstream” leg – Suppliers relationships
Suppliers characterization
From the competitiveness point of view, sourcing has become a very important issue. Our respondents consider that almost half of their suppliers are strategic ones. In average, these firms work with 58 suppliers and for each of their purchases they use six providers in average. Figure 1 shows the geographical distribution of the suppliers. More than half of them are based outside the country. As regional economical integration is not yet well developed, this fact implies that nationalization processes are necessary very often generating a delay source which impacts on safety stocks, JIT processes and delivery times.
Figure 1 – Suppliers geographical distribution
Figure 2 shows the average suppliers categorization. Not surprisingly, parts and materials represent more than 92% of the total purchases, leaving systems and soft technology standing for less than 8%. These figures suggest a certain gap in systems utilization between Venezuelan firms and WCM ones.
Systems suppliers 6,96%
Parts suppliers Materials 38,26% suppliers 54,79%
Figure 2 – Suppliers categorization
Criteria to select strategic suppliers
In a logistics survey carried out during 1998 and 1999, Díaz and Pérez (2000) found that quality, reliability on delivery and price were the three main reasons to select a provider in Venezuela. As it can be seen in Figure 3, our study confirms that this perception has not changed. Quality, delivery performance and lowest price were the three main criteria indicated by our respondents in a Lickert scale from 1 (non important) to 5 (very important). It is interesting to note that the criteria “willingness to disclose information” received a very mitigated grade. Trust -a key element in modern and effective supply chains- is not a common characteristic between Venezuelan manufacturers.
Quality of products/services
Delivery performance
Lowest price bid
Logistic costs
Local sourcing
Willingness to disclose information
Innovation and co-design
Evaluation of supplier potential
1,00 1,50 2,00 2,50 3,00 3,50 4,00 4,50 5,00
Figure 3 – Criteria for selecting strategic suppliers
Coordination & planning with suppliers and JIT issues
Figure 4 shows how our respondents coordinate planning decisions and flow of goods with their strategic suppliers. These results confirm the low level of integration between suppliers and customers among the surveyed firms. Although some issues obtain a good score, physical integration and holding of materials into the plant receive a very low value. A technique as CPFR (Collaborative Planning Forecasting and Replenishment), which is playing a key role in successful supply chains, obtains also a score below average. According to our respondents, 50% of their purchases are delivered in a JIT (Just In Time) manner. But, what does it mean a JIT purchase? In Figure 5 we have crossed two results collected in the survey. For each firm we have plotted the proportion of raw materials delivered JIT versus the average number (in days) of raw materials inventory that they hold. The figure illustrates that JIT is a very relative and subjective concept. For instance, firms that hold a ten day inventory considers that its JIT indicator is nearly 100%; other firms with similar raw materials inventories claim for a very low percentage of JIT purchases. Agreements on delivery frequency
Order tracking/tracing
Dedicated capacity
Share production planning decisions and demand forecast knowledge
Share inventory level knowledge
Collaborative Planning, Forecasting and Replenishment
Require supplier(s) to manage or hold inventories of materials at your site
Physical integration of the supplier into the plant
1,00 1,50 2,00 2,50 3,00 3,50 4,00 4,50 5,00
Figure 4 - Coordination & planning with strategic suppliers
120
T 100 I J
y r e v i
l 80 e d
s e s a
h 60 c r u p
f o
e 40 g a t n e c r
e 20 P
0 0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 170 180 190
Days of inventory Figure 5 – Just in Time operation versus holding raw material inventory Use of electronic tools with suppliers
Figure 6 shows the use intensity of Internet or EDI-based technologies to exchange information with suppliers. Access to electronic catalogues and estimates inquiries are the more common uses of electronic exchange information. More sophisticated applications as data analysis and auctions on line are much less used by our respondents.
Access to catalogues
Quotes inquiries
Order management and tracking
Content and knowledge management
Collaboration support services
Data analysis
Scouting/ pre-qualify
Auctions
1,00 1,50 2,00 2,50 3,00 3,50 4,00 4,50 5,00
Figure 6 – Use of Internet or EDI-based technologies with suppliers
The “downstream” leg – Suppliers relationships
Customers characterization
As it is usual in many manufacturing firms, the average number of clients (105) of our respondents exceeds the average number of their providers (58). About 30% of these customers are considered strategic. Figure 7 shows the geographical distribution of the customers; it is clear from this figure that Venezuelan exports are rare and most of them are addressed to the Andean countries, where a free trade agreement is in place. Figure 7 – Customers geographical distribution
Figure 8 shows the type of final product of surveyed firms. About 45% of their production is conformed by finished products delivered to the end customer either directly or through wholesalers and distributors. The other 55% are semi-elaborated products which are delivered to other manufacturing or integrator firms.
System integrators End users 3,86% 15,68%
Finished products manufacturers 41,31%
Wholesalers / distributors 39,15%
Figure 8 – Type of final product supplied
Coordination & planning criteria an JIT issues with clients
Coordination and planning criteria between surveyed firms and their clients are similar to those developed with suppliers. Figure 9 shows that the two strategies more commonly used with clients are the same used with suppliers (see Figure 4). Same behavior is observed with the less used strategies which are associated with Vendor Managed Inventory (VMI) and physical integration in plants. To be noted that according to observed values, surveyed firms consider that coordination strategies with clients are closer that those with suppliers (see average values in Figures 4 and 9).
Agreements on delivery frequency
Order tracking/tracing
Share production planning decisions and demand forecast knowledge
Collaborative Planning, Forecasting and Replenishment (CPFR)
Share inventory level knowledge
Dedicated capacity
Physical integration with the partner
You manage or hold inventories of materials at your customers’ site
1,00 1,50 2,00 2,50 3,00 3,50 4,00 4,50 5,00
Figure 9 - Coordination & planning with strategic clients
According to our respondents, 64% of their sales are delivered in a JIT manner. As we did for the suppliers, Figure 10 shows the crossing of the proportion of finished goods delivered JIT versus the average number (in days) of final product inventory that they hold. We can appreciate the same phenomenon observed in the case of raw materials. The figure illustrates that JIT is a very relative and subjective concept. 120
100 T I J
y r e v i
l 80 e d
t c u d
o 60 r p
f o
e g a
t 40 n e c r e P 20
0 0 2 4 6 8 10 12 14 16 18 20 22 Days of inventory
Figure 10 - Just in Time operation versus holding finished prodcuts inventory
Use of electronic tools with suppliers
In the technology issues, as it can be seen in Figure 11, the similarity between the relationship with suppliers and customers is remarkable. Access to electronic catalogues and estimates inquiries are the more common uses of electronic exchange information. More sophisticated applications as data analysis and auctions on line are much less used by our respondents. Access to catalogues
Quotes inquiries
Content and knowledge management
Order management and tracking
Collaboration support services
Data analysis
Scouting/ pre-qualify
Auctions
1,00 1,50 2,00 2,50 3,00 3,50 4,00 4,50 5,00
Figure 11 – Use of Internet or EDI-based technologies with clients
Action Plans
Figure 12 shows, for five different aspects, the action plans of our respondents. It is interesting to note that in any case, the future vision is more proactive that the perception of past facts. On the other hand, we find out that “customers coordination” is a strategy visualized as more accessible that “suppliers coordination”. This perception is justified by the fact that most of our respondents’ customers are based in Venezuela. Another interesting fact is to see that “supply strategy” is the aspect with less interest in both fronts: past and future. Finally, Figure 13 shows the reasons that move surveyed firms to use outsourcing in their logistics activities. It is interesting to observe that average scores are quite low (between 2.64 and 2.88) which it is a signal that there are in Venezuela huge opportunities to firms that could offer added value services in this field. Customers coordination
Distribution strategy
Suppliers coordination
Vendor rating
Supply strategy
0,00 0,50 1,00 1,50 2,00 2,50 3,00 3,50 4,00
Past Future Figure 12 – Past and future action plans Reduce costs
Access to production capacity
Access to complementary competencies
2,50 2,55 2,60 2,65 2,70 2,75 2,80 2,85 2,90
Figure 13 – Reasons to outsource logistics activities
Concluding remarks
We have chosen the answers to the Supply Chain Management section to try to understand how Venezuelan firms are overcoming the difficulties associated to a non-friendly environment. Results show that logistics opportunities in Venezuela remain open as outsourcing, network integration with both, suppliers and customers, and information technology are not yet fully used.
References
Diaz Matalobos, Angel & Perez, Cándido (2000) “Logistics Practices in Venezuela. An exploratory study”. Paper presented in BALAS 2000, Caracas, Venezuela.
IMD (2005) – www.imd.ch – Competitiveness Yearbook.
WEF (2005) – www.weforum.org – Global Competitiveness Report.