Identify and Discuss the Change of Activity and Costs Structure within Essay

Identify and Discuss the Change of Activity and Costs Structure within the Supply Chain ifLB Looked to a Third Party Logistics - Essay Example This paper examines critical issues related to Lauritzen Bulkers - LB, one of the leading dry bulk shipping firms in the world with its head quarters in Netherlands (Wolf, 2008). The paper first presents a brief literature review about SCM and then it discuses the change of activity and costs structure within the supply chain if LB looked to a third party logistics provider to supply their transport needs. The paper also examines the extent to which this would impact LB gaining ISO 14000 recognition. LB is a very large shipping company that owns a large number of carriers and it has taken up partnerships with other shipping firms and uses third party logistics. As per the annual report (LB, 2011), by 2011, LB controlled through its owned assets and with those of its network partners, 100 ships of different sizes such as Handymax, Handysize, Capesize and Panamax bulk carriers. Through its subsidiary Lauritzen Kosan, LB controlled a combined fleet of 44 semi-refrigerated ships. Gas car riers for Ethylene, fully pressurised gas carriers, and several smaller refrigerated gas carriers. The firm also controlled 2 numbers very large oil carriers, DP shuttle tankers, and 18 MR product tankers. 2. Literature Review An efficient supply chain can reduce costs, increase efficiency and help to retain customers. Organisations across the world have come to depend on supply chains to service their production lines, fill customer orders and retail shelves. Some important aspects of SCM are discussed in this chapter. 2.1. Nature of supply chains and networks A critical review of Hugos (2011), supply chain management is not merely about picking items from one point and dropping it to another. It is more about estimating demand correctly, understanding the lead-time for procurement and then placing the order for manufacturing. If the lead-time estimation is excessive, then inventory is more and lead to excessive costs while lesser lead-time means the risk of stock out. There is als o the economic order that indicates the minimum quantity required in a shipment. Shipping and logistics firms are integrated with the operations of large buyers so that efficiency is maintained, the quality of service is prompt and reliability of service is unfailing. 2.2. Cost structures in Supply Chains Supply chain analytics often focus on reducing cost structures of the supply chain. This is mainly done because in a procurement cycle, other than the basic product cost, the cost of the supply chain makes up a major component of the cost. The percentage of cost varies from 35% to 55% of the product costs. For perishable items such as dairy products, meat and poultry products, livestock, the costs are more than 67%. Much depends on the distance travelled, the nature of product, pressure for on time delivery, possibility of wastage and loss and other factors (Deloitte, 2012). A critical review of Xia (2003) shows that some of the cost structures in an organisation are inventory carr ying costs, production costs, inspection costs, logistics costs, transportation and handling costs, storage costs, onward forwarding costs and other costs due to delays in berthing, availability of shipping and so on. Some of the costs are borne by the organisation while some are borne by the