Case Study 3 - Sanlu

1. How did the Sanlu milk crisis arise? Who should be deemed responsible for the crisis? Why?

Background of Sanlu’s Milk Crisis 

• In 2000, “AQSIQ” self-regulation in quality control.
• By the late 1980s Sanlu had already met the qualifications imposed by AQSIQ to be deemed able to carry out self-regulation.
• Take advantage in price with only 18RMB, compared with imported milk powders and as a consequence, take the main market in Mainland.
• Sanlu continued to retain country’s top seller of milk powder for 15 years+ (added pressure)

Stakeholders 

1. Sanlu
• Should bear large responsibility 
• Milk powder is using its brand-name 
• Understand but neglect the harmful effect of its products 
• Over-emphasized on profit and ignore the basic quality control 
• Reduce cost and use Melamine
      
2. Supplier 
• Producers and sellers of faked protein powder, milk dealers, sales distributors and diary farmers 
• The penalties are reasonable in reflection of their responsibility in the crisis. 
• It put many infant lives at risk, some did not even make it out alive.
         
3. Dairy product industry
• Also need to bear huge responsibility 
• Using Melamine used to be a common practice among whole industry, and had grown to be a phenomenon 
• Increase in competitiveness by gaining cost advantage shouldn’t surpass the need of basic nutrition
      
4. Government 
• Certain responsibility should be bourn 
• Played a big part in allowing soft regulation in quality control as early as 2000 
• Bribery and corruption may be involved to lead to this situation 
• More restrictions and regulations should be put in place, and should carry out quality regulations compulsorily
     
5. Customer
• They are victims and unaware of harmful effects of Melamine 
• Lack of relevant knowledge and exposure 
• Placing too much trust and without doubting on famous and popular brands may have let to the crisis

2. Referring to the case, why do companies outsource? What are the pros and cons of outsourcing?

Why companies outsource?

1.  To obtain cost advantage
     • Outsourcing is usually linked to a low-cost in production
  • And consequentially they can offer the product to customers at lower prices
  • Less costs related to maintaining the facilities and machinery

2. To focus on its area of strength 

     • Concentrate on the research and development of its own products with whole effort 

     • Can neglect the part of production of dividing its tasks to other companies 

     • Can act merely as the brand face for producers without a public presence

3. To put less pressure on company’s resources

     • Complicated procedures of setting up initially

     • Need of experts

     • Need of labor’s training
   • Employee advantages, other needs taken care of by outsourcing company
     • More time and cost effective

4. To exploit the expertise of outsourcers
     • No need for hiring experts in field in question
     • No need to extra efforts to train employees
     • Exploit expensive machinery and maintenance cost

Pros of outsourcing

i.     Cost effective 
ii.    Specialise on R&D of product 
iii.   Exploit outsourcers skills 
iv.   Sharing 
v.    Reduction of recruitment and operational costs 
vi.   Cash flow being streamlined 
vii.  Increase productivity and efficiency 
viii. Flexibility in staffing and manpower management

Cons of outsourcing

i.     Risk of exposing confidential information
ii.    Lost of central control
iii.   Exposed to dishonesty from outsourcers
iv.   Over-dependency on outsourcers
v.    Reduction in flexibility of production
vi.   Risk of poor coordination
vii.  Problems of quality

3. What is the role of ethics in supply-chain management?

• Ethics should be treated as principles or bottom-lines of SCM.
• SCM should be transparency between upstream and downstream.
• Mission and core value of a SC should keep step with the ethics.
• Different steps or parties should build a standard and regulation to guarantee the products quality and reputation.
• Every partner should carry the whole SC responsibilities and take the whole SCM’s profits as their owns.

4. What can be done to restore consumer confidence in Chinese dairy products?

Dairy product industry 

• Press conference: get the media involved to increase transparency
• Taking responsibility and admitting to their mistakes
• Discontinue production and distribution of fainted products
• More can be done to boost transparency
• No secrets should be kept in the process of production, e.g. raw materials used, production methods etc. 
• Communication between customers and retailers to get the feedback form customers
• Enhance the general quality of dairy products
• Can ally with foreign dairy product companies to use their brand as a promotion method, e.g. Promote that using the same ingredient as that company
• Tightly control the entry barrier
• Pass the quality control test, fail to enter the industry if cannot pass the test)

Government

• To strength regulations on dairy products
• Penalising responsible parties harshly
• Promote education to farmers
• Can be aware of what they are doing
• Develop a new government development may help
• Similar to “ICAC”, independent department used to control the dairy production tightly
• Education to general public
• To create the awareness of food safety

Society

• Media can take an active role to monitor the production process of dairy products
• Announce any related information promptly to the public
• Public’s awareness on food can be improved
• A phenomenon should be created among the society: People should be brave to voice out when they faced the unfair issue without the permit of government
• Consumer can, thus, have a larger bargaining power to strive for their self interest, at least not to be harmed

Post Visit Review of HIT

BRIEF BACKGROUND INFORMATION OF HIT

Hong Kong International Terminals (HIT) which is located in Kwai Tsing port is one of the busiest containers port in the world.It operates twelve berths at Terminals 4, 6, 7 and 9 From 1969, HIT continuously to devote effort in other to enhance its efficiency, capacity, technology systems and value-added services. 

Q&A SECTION

1. HIT owned a special management system called nGen, it is a system that control the whole function of the terminal. What are the competitive advantages you gained from it? If nGen encounter any technical or unexpected problems, are there any safety measures for HIT to continue the terminal operations? 

HIT is using Next Generation Terminal Management System (nGen) to manipulate the whole terminal which has making a great different to itself and customers. According to the introduction of nGen, it controls the entire scope of terminal operations, including ship and yard planning, gate operations, and vessel operations; plus overall operations monitoring, equipment utilization, productivity, and costs optimization. This totally enhance its efficiency and also provide immediately real-time situation and alert to the control center . This can save more resources so HIT can utilize its resources in a more efficiency way. Furthermore, as nGen is created by HIT, it can match customer needs without reprogramming and compiling. With nGen system, it is surely a competitive advantages for meeting the increasing productivity and capacity of the terminal in the coming decade.

On the other hand, once nGen encounter any technical or unexpected problems, HIT still has reserved three systems for backing up the nGen system for 24 hours running. Therefore, it should not be a great affect even nGen has encountered any problem as there will be sufficient time and support for nGen to run probably again by temperately using the three supporting reserve systems.

2. The Terrorist like ISIS become more and more popular. What measures has HIT taken to ensure the safety of the cargos? How can you prevent the prohibit products inside the cargo?

In fact, HIT controls only the port and logistics operations, HIT does not have information about what’s inside the cargo by themselves, unless HIT was told to handle some specific dangerous goods. In that case, HIT’s Safety Management System’s explicit safety rules and regulations cover the handling, transporting and storage of those goods. So basically HIT does not hold the responsibility to check every cargo’s safety but the Government of the Hong Kong Special Administrative Region and customers themselves.

3.  The cost like the wage of labor is increasing. What measures has HIT taken to deal with the increasing cost?

With the operation cost increase, the HIT has capitalize the operation process from labor incentive to machine. They increase the usage of machine and lower the daily operation cost. Moreover, the usage of machine make the operation efficient and smooth. This factors may lead to economic of scale.

4. There are always typhoons hoisted in Hong Kong during summer. How serious would the typhoon affect your operation?

As explained to us by our guide, typhoons and rough weather conditions rarely, if ever affect HIT operations. They operate 24/7 and only terminate operations if the said weather conditions are extreme. Hence, I think for that to happen, in a figure it would be typhoon no.9/ 10, Increasing gale or storm, and Hurricane, respectively. If HIT does not take the correct precautions to counter the above mentioned weather conditions they may be putting their large workforce at heavy risk, in addition to risking the safety of the carriers and goods present on the site. Therefore, while HIT may not need to worry about the regular rainstorm or two, they do however need to be extra precautious about more serious weather conditions.

5. What are the effects to your company after the labor strike?

2013 Hong Kong dock strike caused huge losses on profits for HIT. And it ended with 9.8% salary raises to labor. It was no doubt that the longest labor strike in HK history triggered big losses to dock business, however, it revealed the weaknesses of HIT, such as shabby work conditions and long work hours. Therefore, it was an opportunity for HIT to change the situations and keep the leader position. Nowadays, these problems get relative good answers.

6. How does HIT get involved in corporate social responsibility?

As one of the most famous transportation companies, HIT involved in lots of public social activities. According to the staff, HIT holds some activities to help old who live alone. Also, HIT cooperate with university students who study arts to make some trash cans to promote the concept of environment protection. Besides, they hold different activities to get involved in corporate social responsibility. 

7. With the advancement of terminal business in Singapore and Mainland China such as Shanghai, Guangzhou and Shenzhen, what HIT is doing these years to keep its competitive edges and compete with other competitors?

With the advancement of terminal business in other Asian region, HIT can take limit actions to enhance its competitiveness. Since the geographical limitation of Hong Kong, there is no land near Kwai Tsing Container Terminals available to extend HIT business volume and capacity. There is a trend of shipping business that the ships are built in bigger size. The HIT infrastructures face difficulties in handling the huge size ship. However, HIT improved its information technology in handling cargo and forecasting shipment. The forecast is accurate and effective. HIT enhances its arms’ efficiency and quantity in order to fasten the operation procedure. Furthermore, Hong Kong is free trade port. The cargo would not be checked and scan by the government. It makes HIT a convenient choice for the companies. 

Summary

HIT played a very important role in the history of Hong Kong. However, with the change of economic model from a trading port to a financial-services international center, it's not the flourishing time of HIT anymore. On the other hand, with the rapid development of near countries' ports such as Shanghai, Singapore and Shenzhen, HIT has to find way to increase its capacity and productivity so as to maintain its competitive advantages in this economic condition. 

Although the capacity of HIT has almost saturated, it keeps modifying its technology systems and value-added services in order to face new challenges such as serving larger and lager container ship and environmental issue.

Reflection 

The visit to HIT was very eye opening. It was the first time many of us got to experience a shipping yard, with containers, cranes and other related machinery in person. And needless to say we were all in awe. 

We were also astonished to find out that Hong Kong is the fourth biggest terminal in the world, right after Shanghai, Singapore and Shenzhen. Not to mention, Hong Kong’s capacity is at its fullest already, with its competitive advantage of a free port and its deep sea water levels, this did not come as a surprise 

In terms of management styles, we were told that there are 5 companies sharing the Kwai Tsing port. Despite sharing the port they had separate management, and were in competition with each other. The politics of this arrangement is very interesting; these 5 companies not only shared the port, they also share stock shares, however they only cooperate because they share the same terminal and there’s still competition between them. 

On a side note, we were told that out of 450 arm controllers, the only female was a 24 year old controller that was in training. Which goes to show that in a male dominated area of employment, women can certainly make it if they have the will.

REFERENCES
www.hit.com.hk

http://www.hkite.com/system_terminal_hit.html

Post Visit Review of Kerry Logistics

BRIEF BACKGROUND INFORMATION OF kerry logistics

Kerry Logistics is the leading third-party logistics company in ASEAN. It was founded in 1978 and its headquarters are based in Hong Kong. Although its business mainly rooted in Asia and mainland China, its business also covered globally. Kerry Logistics strives to provide services along the basic logistics mechanics, by improving logistic further into a business and provide customized services to their customers, believed to create a much smoother and effective transportation of goods.

Kerry Logistics has built a network that guaranteed to introduce and guide its customers’ businesses suitably into the global, regional and local level. Needless to say Kerry Logistics is also equipped to give out value-added services to its customers, like kitting, labelling for electronic & technology industry; GOH (Garment on hangers), Ironing for fashion & lifestyle industry etc. These kind of value-added services also contribute to its strong competitiveness in the market.

SHARING and warehouse visit

We are glad to received a sharing from the representative of Kerry Logistics about their company background, supply chain management of their operation and especially the introduction on their valued added services.Following are some important slides in the sharing sessions.

Introduction the type of warehouse by Kerry Logistics.

The KART service offered by Kerry Logistics

Here is a basic summary of Kerry Logistics. They mainly provide "Integrated Logistics" and "International Freight Forwarding" to the industries in the bottom of the slide.

Some of the value added services provided by Kerry Logistics.

Kerry Logistics also show us some videos as cases on introducing their value added services.

Their certification on the quality assurance.

Apart from having a presentation by staff of Kerry Logistics, they also bring us to the warehouse of one of their clients, Cannon, to have a direct visit. 

We are having a brief introduction on the Cannon's inventories that managed by Kerry Logistics.

Q&A SECTION

1.     What are the competitive advantages of Kerry Logistic compare with FedEx, DHL and USP?'

According to the claims by Kerry Logistics' staff, in fact logistics firms like FedEx, DHL an USP are not the direct competitors of Kerry Logistics. These firms are having the leading positions in transportation and logistics firm but in different divisions. Kerry Logistics are mainly focused on the Asian market, especially that in Mainland China. Moreover, Kerry Logistics is differentiated itself to be a B2B, while the others mentioned are usually B2C.

2.     Beside RFID, what technology have you used for inventory tracking?

Kerry Logistics as a third-party logistics company itself, actually it will be difficult to use the technology like RFID alone, without the common usage by their clients. If they set up the RFID system within their warehouse only, the costs will be quiet high. Since if the goods are located in their warehouses, those can be track easily without the RFID, but just the simple labelling. Therefore, in order to be cost effective, technology like RFID may not be used generally unless the stakeholders in the whole supply chain get used to it.

3.     Unlike your competitors, Kerry is an asset-based logistics company. Obviously, it reduces some uncertain market risk such as the raising rental cost. However, it will potentially reduce the future liquidity and flexibility in long term.  Why do you have this plan or strategy?

As a logistics company, having its own assets can actually facilitate their daily operation since hardware is an crucial elements in handling their clients' inventory. For instances, they need their own forklift trucks in order to managed the inventories in their warehouse, they also need their own truck team with their truck to transport the goods from warehouse to their clients or from clients to warehouses. Moreover,  actually some of the warehouse are actually their own assets already, so it wont a great burden that have effect on the cost.

4.     Recently, Kerry logistic proposes to reconstruct the warehouse to columbaria.  Why does Kerry have this plan instead of expanding the business so that the warehouse capacity can be fully utilized?  Is this action implied that Kerry do have confidence with your core business?

Actually it is not a decision made by Kerry Logistics but their mother firm, Kerry Properties, since they may think that it will be more profitable by turning the warehouse into columbaria. Moreover, that warehouse are located in Chai Wan and mainly documents will be stored there. Therefore, it will be even more convenient if those documents transfer to other warehouse that located in a more centered area. There won't be a large inconvenience caused to their clients.

5.     How can Kerry Logistics use the information system to enhance its effectiveness and efficiency?

   Kerry Logistics invented a smart phone app which is EPOD, by using the app the driver can get to know the places for loading their goods on truck, besides the customers can track the situation for their products. Also, the app provided multi-functions like electronic signature, sending photos and videos instantly etc. That can facilitate the customers of Kerry logistics to use their service more conveniently, and that help Kerry Logistics to keep itself in the leading market place.

6.     On your official website, you stated that you’ve provided exemplary cleaning and repair services for "your" ISO tanks. It's not clear here if the ISO tanks are provided by Kerry itself or the customer.  Could you please elaborate? 

   In fact, Kerry logistics branches in Singapore and Indonesia will help their customers to clean the ISO tanks. The ISO tanks are belongs to the customers themselves. ISO tanks which is a tank in a tank in the container and it can be pull away by using the truck and it is very convenient. But Kerry Logistics can provide the ISO tank if the customer request.

7.     What do you do to protect the goods from being damaged during transport?

  When Kerry Logistics deal with bulky goods, they will do the precaution depends on the type of goods. For example, if it’s some food or regular shaped products, it will usually pack in a box, but if it’s in irregular shape, they will handle it specially. Like canon printers, Kerry Logistics will transport it with special holders and also they will place mats on floor and wall, in order to avoid the products being damaged during the journey.

8.     How does Kerry Logistics compensate their customers for loss due to the damage of goods?

   When Kerry Logistics sign the contracts with its customers, highest liability will be mentioned in the contract terms for in case the goods are damaged by Kerry. When the goods are being damaged, it will depends on whose responsibility on it, if it’s just happen because of accident, most of the customers will not ask for the compensation from Kerry. But if that is Kerry’s responsibility, it will consider the loss of the customers and compensate them within the maximum liability amount stated in the contract term.

9.     How does KerrierVISION support your operation?

KerrierVISION is a system similar to EPOD, it allows Kerry’s customers to check the shipments as well as the freight movements. It increased visibility, accessibility as well as the connectivity within Kerry and its customers. The system provides customers’ inventory level, freight information, purchase order and delivery tracking, these all contributing to increase cost effectiveness for its clients. And also it makes the operation more systematic and simple which incurred less operation cost too.

SUMMARY

By visiting Kerry Logistics, we have a close look of  Hong Kong's transportation and logistics industry and a detailed introduction of Kerry Logistics itself, especially there is a hit issue that about the columbaria recently. We have a great lesson from Kerry Logistics and their real project of Cannon make our understanding much more clearly.

REFLECTION

We earned a lot in this visit. In the past, we always think that logistic is only about transporting goods from one place to another, but after this visit, we know that it is not so simple. In order to run a logistic company successfully, both software and hardware are very important. No doubt that trucks and staff are crucial for a logistic company, but information system is also a key reason for leading to success. For example, like Kerry Logistics’ KerrierVISION enables its customers to track the shipments and freights movement of their goods, and that’s the value-added part for Kerry’s business. Besides, networking is very important too. KART is the unique road transport route in order to deal with the increasing demand for road services connecting places in ASEAN. In order to build this transport network, it required Kerry to have a very good relationship with many different countries’ governments and in fact Kerry did that. Besides, Kerry itself, FedEx and other logistic companies also make use of that. we think that Kerry Logistics is a very all-rounded logistic company and we do think that they can maintain its leading place in the industry as long as they keep improving along its recent strategies. But in our opinion, although most of the companies will have backup for their information system, too rely on it will lead to serious lost once the system crash down.

REFERENCE

http://www.kerrylogistics.com/eng/OUR_EXPERTISE/InternationalFreightForward/roadrailfreight/kart/kart.jsp

http://www.kerrylogistics.com/eng/main/kerriervision.jsp

http://www.kerrylogistics.com/eng/main/index.jsp?FromURL=web