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.
Background
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,
SrnartActions, SmartTagger, SmartBundler. Key to many of these e-commerce
capabilities are time-sensitive measurement metrics.
ASCI’s time measurement metrical 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 to on time and accurate delivery for the items they provide. Through
the use of these metrics, ASCI’s 2005 performance measurement achieved 90.6% on time
and accurate delivery of goods to North Slope customers
The problem
ASCI’s e-commerce solution is intended to address 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 identified as 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 provide
not only tracking of goods purchased but the handling and transportation activities, as
well. The logistics of moving the procured items provides a means to measure and
enhance added value to the product while assisting ASCI in lowering the final price paid.
As an example, one frequent event includes the misclassification of purchase price with
the total price of the goods purchased, which includes transportation costs. In this
situation, the cost of transportation is buried in the cost of the goods’ purchase price. The
indicated cost of material is inflated by the transportation cost which prevents or hinders
the supply chain management team from identifying the true cost and potentially
addressing root issues.
One key factor in providing the overall supply chain visibility is the capability to
track the product from receipt to final delivery. Currently tracking is achieved through a
combination of bar codes, visible inspection and person-to-person contact augmented by
manual computer entry.
The RFlD solution
At a recent meeting with representatives of MX Consulting, a proposal was presented to
show that RFID could save ASCI more time and money in tracking goods from the
vendors to the end customer’s warehouse. Meeting with ASCI manager, Scott Hawkins,
and several senior purchasers, Bob Tibmen, president of MX, explained, “With passive
RFID tags on high value items, like the generator, you could track and trace its
movement from the factory to the North Slope warehouse.” Scott and his staff listened as
Bob laid out how an RFlD system not only could provide visibility along the entire
supply chain, but could also be very useful in ASCI’s cross-docking facility. Bob
explained that when pallets of goods entered the facility they could instantly read what
the product was, where it had come from, the due date to get to the North Slope, and any
other related information. The key to successfully using RFID is that when boxes of
items come in on a pallet, ASCI no longer have to open each box and read each item by
bar code, or record any hand written information that might have been added to the bar
code label as often happens. Bob said, “The use of an RFID tagging system could cut
down on your labor cost; you could probably eliminate one or two positions in loading
and processing and checking of products as they enter your facility.”
Case analysis
What advice would you give Bob if you were one of Bob’s employees?
What advice would you give Scott if you were one of Scott’s managers or employees?
What is the basis for determining the price on the COG that could be changed by RFID?
What savings on the COG could be realized with an RFID system?
