Introduction
As an international company that is headquartered in Spain and retailing sports clothing and footwear in the Gulf Cooperation Council (GCC) countries, El Deporte is expected to develop an effective supply chain to address customers all over the globe. Currently, the key task is to guarantee that the Middle East Division of El Deporte located in Dubai, the United Arab Emirates (UAE), can organize the cooperation with new suppliers in addition to the current suppliers located in Algeciras, Spain, and New York, the United States because the Regional Distribution Centre is situated in Dubai. The problem is that the company’s sales increase, and factories in Spain and the USA cannot fully serve the needs of customers in the GCC countries. The purpose of this report is to describe the benchmarking process associated with the selection of alternative suppliers, discuss the logistics issues related to the collaboration with the selected suppliers, to analyze expected and appropriate transit times and inventory levels, and provide recommendations to address the discussed situation and improve the supply chain management.
Benchmarking
To select the most appropriate suppliers among available alternatives, the Sourcing Manager of the Middle East Division of El Deporte is expected to benchmark suppliers about each other, depending on several factors or criteria that need to be taken into account. In this context, benchmarking is a process of comparing suppliers and offered services or products against the best example to determine what suppliers can propose services that are equal in services to the existing ones, with the focus on factories in Algeciras and New York (Ascencio et al. 2014; Ayers & Odegaard 2018; Ravindran 2016). A range of factors needs to be considered while benchmarking available suppliers against factories in Algeciras and New York and each other. These factors include all related costs, the capacity and quality requirements, available transportation modes, and transit times, as well as reliability and conditions regulating the cooperation.
Cost Categories
The cost of collaborating with new factories is an important factor to consider and influence Sourcing Manager’s decision. It is important to calculate forecasted costs about purchasing prices and associated transportation costs (Ascencio et al. 2014; Clark, Kozlova & Schaur 2014). Purchasing prices are expected to be lower or the same as in the case of working with factories in Algeciras and New York. If these costs are higher, the quality of the provided goods and services should also be higher. Furthermore, it is necessary to guarantee that costs associated with such preferable transport mode as sea transport are comparably low, and the use of airplanes for urgent cases is also possible at appropriate costs (Ascencio et al. 2014). The payment for shipment should be considered by the Sourcing Manager.
If the country where a supplier is located has high transportation tariffs and services of shippers are more expensive than in other countries, it is necessary to evaluate another option. It is expected that the use of sea transport in the selected country is active and comparably cheap, and shippers propose high-quality services and attractive conditions that influence costs of both suppliers and El Deporte (Ayers & Odegaard 2018; Clark, Kozlova & Schaur 2014; Ke et al. 2015). Also, costs taken into account include fees, specific taxes, and tariffs associated with purchasing such goods as sports clothing and footwear and trading on an international arena. Costs of organizing a single supply chain management system with new factories should also be analyzed (Ayers & Odegaard 2018; Ravindran 2016).
Capacity and Quality
The selected supplier is expected to produce and provide the volumes of goods per week or month that were guaranteed by the other two suppliers while serving the needs of all customers in the GCC countries. Thus, the capacity of the selected factories should be evaluated in terms of shipping the expected number of 20ft containers per week and month (Clark, Kozlova & Schaur 2014; Coyle et al. 2016). Also, the quality of the provided goods cannot be lower than the quality of sports clothing and footwear supplied by other factories that are used as benchmarks. Finally, operating times should be adequate and correlated with El Deporte’s timetables (Coyle et al. 2016; Ravindran 2016). Furthermore, suppliers are expected to meet certain quality criteria and certain delivery standards. Besides, they need to be certified (Ayers & Odegaard 2018; Coyle et al. 2016; Ravindran 2016).
Transportation Modes and Transit Times
Transportation modes in the selected countries that are available for potential suppliers need to be determined, and their quality and capacity should be assessed. The strategic location of Dubai and its Jebel Ali Port allows for selecting suppliers, transportation modes, and available seaports mainly concerning the situation in the country, from which goods will be shipped (Sundarakani 2017). It is not appropriate for El Deporte and new suppliers to possess their fleet of ships to transport goods, but it is necessary to evaluate the availability of containers and shippers, as well as to assess what contracts are signed with transportation firms, what are the associated fees and terms (Clark, Kozlova & Schaur 2014; Coyle et al. 2016).
From this perspective, the Sourcing Manager will focus on selecting suppliers that are located in countries with the developed system of sea transport with the focus on shipping large containers regularly. As a result, suppliers are expected to be located near seaports to decrease the costs of transporting goods. The nearby airports should also be considered (Ayers & Odegaard 2018; Clark, Kozlova & Schaur 2014). It is also necessary to guarantee that the transport capacity is high to address possible fluctuations in volumes.
Transit times need to be assessed for shipping goods from a supplier to a seaport, from a seaport in the selected country to a seaport in Dubai, and from a seaport in Dubai to the Regional Distribution Centre of the company. However, evaluating transit times, the Sourcing Manager is expected to assess transportation costs associated with the lowest and highest transit times, factors that influence transit times, and potential consistency in shipping goods during a certain period that can directly affect operations if goods are shipped during rather different times despite using the same transport mode (Ayers & Odegaard 2018; Coyle et al. 2016).
Reliability and Conditions
The company orients to selecting the most reliable suppliers who will provide high-quality products and services within the set period. The risk of delays in shipments or decreased volumes of goods needs to be prevented through benchmarking potential suppliers (Ayers & Odegaard 2018; Coyle et al. 2016). Terms of sales, contracts regulating the cooperation, and associated conditions need to satisfy expectations of El Deporte. Therefore, documentation and security regulations related to the cooperation between a new supplier and the company should also be evaluated and compared to select the most appropriate conditions.
Logistics
The selection of the factories located in Mumbai, India, and Sao Paulo, Brazil, depends on benchmarking all available suppliers and choosing the most appropriate variants for El Deporte. Business practices in Brazil and India differ significantly from practices in Dubai and Spain, and much attention should be paid to the existing regulations (Sundarakani 2017; Vieira, Neto & Ribeiro 2015). As a result, due to the benchmarking procedure, the risk of developing problematic situations or barriers to organizing an effective supply chain concerning these two factories is minimal. Still, to ensure efficient cooperation between El Deporte and suppliers, it is necessary to visit the selected factories and discuss the following logistics issues: regulations in Brazil and India regarding supplier relationships and the export of goods; costs coverage; suppliers’ relations with shippers; and overall terms and conditions reflected in contracts.
It is necessary to start with discussing the legal and economic environments of India and Brazil in terms of existing tariffs, fees, duties, and taxes, as well as regulations for the international trade as it influences the activities of the selected factories and their performance as suppliers for the Middle Eastern market of El Deporte. During the recent years, Brazil developed the policy of rapprochement with the countries of the Middle East, and this aspect positively influenced trading relationships between the countries with the focus on existing business agreements (Casaca et al. 2017; Vieira, Neto & Ribeiro 2015). Therefore, the legal and economic environments in Brazil positively influence the development of supplier relationships with the UAE. Current agreements between India and the UAE also allow for facilitating trade relationships and the development of effective supply chains (Sundarakani 2017).
From this perspective, the Logistics Manager is expected to discuss all possible issues associated with tariffs, duties, taxes, and regulations that cover relationships between Brazil, India, and the UAE. Moreover, it is also necessary to note that, “among the Arab regional countries, Dubai is very much advanced and has implemented several industry standards and codes for easing the business” (Sundarakani 2017, p. 121). As a result, Dubai is viewed as an attractive economy to develop supply and trading relationships, and this situation creates more opportunities for Logistics Manager to ensure that factories in Brazil and India are prepared for cooperating with the UAE as the Middle Eastern country. This tendency can be observed even though these new suppliers had no experience in working with this specific market of the Middle East.
One more step is the discussion of the selected factories’ capacities and their readiness to provide the agreed volumes of goods during the discussed periods. If the capacity is appropriate, it is also necessary to agree on costs related to purchasing the ordered goods in both countries (Ayers & Odegaard 2018; Clark, Kozlova & Schaur 2014; Coyle et al. 2016). For Logistics Manager, it is necessary to guarantee that all conditions related to purchasing products at a fixed price, referring or not to changes in the exchange rates in Brazil, India, Spain, and the UAE are reflected in contracts and other documentation to regulate the supplier relationships (Sundarakani 2017; Vieira, Neto & Ribeiro 2015). Moreover, cases and terms of covering transportation costs and addressing plans regarding produced volumes, deliveries, and deadlines are also items to be presented in contracts and be discussed by the representatives of suppliers and El Deporte.
The location of factories needs to be examined in its relation to seaports and airports. If these factories are located far from airports and seaports, and the transportation of goods is a challenging task, it is important to discuss the conditions of covering costs associated with transporting goods to ports and Dubai. Besides, the seaports of Sao Paolo and Mumbai should be appropriate for shipping containers required for being transported from the factories to Dubai (Sundarakani 2017). It is important to make sure that there are no limits on services proposed by shippers in these ports. The selected seaports include Jawaharlal Nehru Port in India and the Port of Santos in Brazil because of the offered services and fees. After selecting seaports, Logistics Manager needs to discuss the contracts of the suppliers with their shippers, and how these terms can potentially affect the on-time delivery of goods because it is critical for the company to guarantee that the freight will be moved according to the set schedules and delivered concerning the forecasted transit times (Ayers & Odegaard 2018; Coyle et al. 2016).
Therefore, at the next stage of negotiations with suppliers, Logistics Manager is also expected to clarify issues regarding policies and norms adopted in the selected seaports and terms in contracts of the chosen factories about cases of demurrage and possible detention of ships depending on a range of issues. These policies and management procedures should satisfy the company’s expectations regarding the resolution of the cases of demurrage and detention, as well as affected transit times (Ascencio et al. 2014; Clark, Kozlova & Schaur 2014; Ravindran 2016). Also, Logistics Manager is expected to discuss issues related to the used cargo insurance, regulations regarding credits, and used letters of credit, documentation regarding ocean bills of lading, and rules for inspections (Ascencio et al. 2014; Clark, Kozlova & Schaur 2014). All these steps are required to be completed by Logistics Manager because it is important to make sure that an appropriate mode of transport will be available, transit times will be suitable, costs will meet the company’s accounting forecasts, terms and contracts will satisfy the company’s expectations, and all these aspects will correspond appropriate inventory levels.
Transit Times and Inventory Levels
To make sure that the selected new suppliers can transport required goods on time, it is necessary to compare transit times for the existing suppliers and chosen factories with the focus on the availability of seaports. The logistics Manager needs to provide the table representing transit times for comparing current suppliers and the newly selected ones. Besides, the analysis should be conducted regarding the necessity of managing inventory levels.
Transit Times
The current supplier of sports clothing is the factory in Spain, and the place of loading the goods is the Port of Algeciras. The transit time from this seaport to Jebel Ali Port in Dubai is about 16 days. This transit time is calculated concerning shipping 20ft containers of clothing. While cooperating with the factory in India, the company will transport clothing using the services of Jawaharlal Nehru Port, and the transit time will be about five days. The current supplier of sports footwear is in New York, and the transit time from the Port of New York and New Jersey to Jebel Ali Port is about a month with a minimum of 24 days. The factory in Sao Paolo will use the services of the Port of Santos, and the transit time to Dubai will also be about 24-30 days (Table 1).
Table 1: Transit Times by Sea. (SeaRates 2018).
Inventory Levels and Recommendations
The Distribution Centre in Dubai works to hold different inventory levels for sports clothing and footwear. The inventory level is calculated in weeks, and it is four weeks for sports clothing. For footwear, it equals six weeks. As the current transit time from Algeciras to Dubai is a minimum of 16 days, the inventory level in four weeks is reasonable, and two weeks are used for conducting retailing operations in the GCC countries. The same situation is observed for transporting and retailing footwear because the transit time is about four weeks, and two weeks are required for organizing the sale of goods in the GCC countries. The analysis of the transit times for new suppliers indicates that the time for shipping clothing from Mumbai to Dubai will decrease to five days, and this period is significantly shorter in comparison to the current transit time in 16 days. As a result, certain revisions in the used inventory levels for sports clothing can be proposed.
One of the goals in supply chain management is to decrease costs associated with inventory levels. Significant costs are usually related to the time required for holding the inventories as the company needs to keep all inventories required for selling and covering customers’ needs (Ayers & Odegaard 2018; Clark, Kozlova & Schaur 2014; Ravindran 2016). However, when goods are stored in the Distribution Centre in Dubai, and they are not sold, inventory storage costs increase. It is important to note that transit times can directly affect inventory levels as weeks for storing goods. Long transit times are associated with higher inventory levels, which lead to higher storage or carrying costs (Coyle et al. 2016). As a result, it is critical to find options to reduce transit times to decrease possible inventory levels of coverage costs. In the case of cooperating with the new supplier providing sports clothing, it is possible to significantly decrease inventory levels. Therefore, it is recommended to reduce inventory levels for clothing to three weeks.
As a result, the reduction of the level of inventories for sports clothing from four weeks to three weeks will potentially lead to saving costs for the company. However, this initiative will work efficiently only if there is the consistency of the forecasted transit times (Ravindran 2016). The logistics Manager needs to be sure that the supplier in Mumbai and shippers in Jawaharlal Nehru Port can guarantee on-time deliveries of goods to Dubai within five days. The shipper and carrier should be reliable, and terms and conditions of collaboration need to be reflected in contracts. If Logistics Manager can guarantee that goods from Mumbai will be successfully shipped within five days, it is possible to decide reduced inventory levels for sports clothing to save costs for the company.
Still, this decision should also be based on the analysis of costs associated with reduced inventory levels and the specific number of goods transported from Mumbai, as well as with an appropriate schedule. The possibility of reducing the inventory level for sports clothing also depends on the necessity of revising the schedule for deliveries because it is important to correlate the number of deliveries per month, inventory levels, and the customer demand for sports clothing (Ayers & Odegaard 2018; Coyle et al. 2016; Ravindran 2016). If potential changes in suppliers are associated with changes in freight costs, transportation costs, tariffs, fees, and taxes, it is necessary to analyze all these changes and compare them to savings associated with differences in inventory levels and altered schedules to guarantee that the revision of inventory levels can lead to reducing costs instead of creating additional barriers for the Distribution Centre in Dubai (Clark, Kozlova & Schaur 2014; Coyle et al. 2016).
Conclusion
The Middle East Division of El Deporte located in Dubai faced the necessity of searching for two additional suppliers for providing sports clothing and footwear to the market of the GCC countries. Factories located in Mumbai, India, and Sao Paulo, Brazil, can be viewed as appropriate suppliers to replace the current ones and address the capacity problem. However, to guarantee that the goods are delivered on-time, and the supply chain works effectively, it is critical to address the following issues: considering regulations in Brazil and India regarding supplier relationships and the export of goods; examining costs and their coverage; discussing suppliers’ relations with shippers; and analyzing overall terms and conditions that are reflected in contracts. These issues are expected to be discussed by Logistics Manager with the representatives of the chosen factories, and agreed options and conditions need to be reflected in contracts and terms that regulate the cooperation of El Deporte and its suppliers.
After analyzing current and forecasted transit times for the two categories of goods that are retailed by El Deporte in the GCC countries, it is possible to recommend reducing the level of inventories for sports clothing. However, as was stated earlier, this decision is rather problematic, and despite potential profits and benefits for the company, it is necessary to decide on this option only after discussing and evaluating all aspects of the case and predicting potential consequences. Negotiations with new suppliers need to demonstrate whether all goods will be delivered on time and whether the terms and conditions of supplier relationships will be attractive to the Middle East Division of El Deporte located in Dubai. All possible challenges and barriers need to be predicted and addressed to minimize risks and costs for the company that can be connected with changes in suppliers and inventory levels.
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