Report: Supply Chain Management and Optimization for Johnson Skin Care

This report provides a comprehensive analysis of the supply chain management for Johnson Skin Care, a company expanding into the retail sector. It identifies current problems such as transportation inefficiencies and high costs due to its existing business-to-business model and proposes an optimization plan. The report covers key areas including operational optimization through supply chain management, focusing on minimizing manufacturing, transportation, and distribution costs. It also addresses cost allocation frameworks, pricing strategies, and vendor rating systems to improve supplier selection. Inventory control methods are discussed to minimize costs. Additionally, the report suggests an implementation plan for a new distribution system, along with recommendations for a consistent service level, and concludes with actionable insights and a reference list. The report focuses on optimizing operations, managing inventory, and improving distribution strategies to maximize profitability.

JOHNSON SKIN CARE SUPPLY CHAIN MANAGEMENT
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Contents
JOHNSON SKIN CARE SUPPLY CHAIN MANAGEMENT............................................1
Introduction................................................................................................................................2
Current problems of Johnson skin care......................................................................................2
Optimisation of Operation..........................................................................................................3
Framework for the current cost allocation.................................................................................5
Recognise pricing point of products (what the market sustain).................................................5
Vendor rating system (supplier selection)..................................................................................6
Inventory control methods to be deployed.................................................................................8
Implementation plan for new framework of the distribution system.........................................9
Recommendation regarding the company’s policy of offering all its customers for the same
service level (three-day fulfilment cycle)................................................................................10
Conclusion................................................................................................................................11
Reference list............................................................................................................................11
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Introduction
This report addresses the case study of Johnson skin care. The company has its business cycle
dealing with other businesses. Now the company want to improvise and diversify its market
and cover the retail sector as well. Researches done on the market gives a green signal to the
planned venture, the existing supply chain cost and time of production and procedures are to
be reviewed and changed to suit its new venture. The report discusses the probable changes
and develops an action plan.
Current problems of Johnson skin care
Johnson skin care has its business with other businesses. It has been supplying products to the
businesses like spa, salons and other such institutions. The sale of its SKUs like the women’s
foot care, men foot care and body butter contributes the most among the 100 SKUs of the
company. Thus the company decided to conduct a market research regarding the probable
profit of selling these products in the market the traditional way. The market research
regarding entering the traditional market showed that the possible annual sales of WFC,
MFC, BB through traditional market is going to generate an annual sale of $15000000, $
4500000 and $2000000 respectively. Thus the company has decided on appointing a new
director of logistic and asked him to develop a plan for the new venture.
The transport of the products has been a new expense that is added to the company. The
company has 3 staging warehouses in the company. The company distributes to various parts
of the country like the North West, south west, and south, mid west and north east. The
demand for the products are highest in the north east and the south followed by Midwest,
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southwest and northwest. The volumes of the products are way too high as a result the truck
has 30 per cent of space left when the weight of the truck has reached its optimum level.
Optimisation of Operation
The optimisation of operation can be achieved through supply chain optimization. The supply
chain optimization takes an initiative in minimizing the 3 most important supply chain
components that is the manufacturing cost, transportation cost and distribution cost
(Papageorgiou, 2009).
The aim of the logistic director is to maximise the gross margin return on inventory invested
that is to make sure that the cost of inventory is balanced at each of the points to make sure
that there is enough availability to the customer.
The manufacturing of the company is highly dependent on the sales forecast. The sales
forecast of the products are the WFC has a chance of generating a revenue of $15,000,000
selling each of the unit at $ 5.00 so 3000000 units of WFC is going to be sold. The
production cost of each of the units of WFC is $ 2.55 making a profit on each unit $ 2.45 and
in total a profit of $ 735, 0000 is forecasted. In case of MFC the forecast of the products sold
in this category includes sales revenue of $ 4,500,000 by selling each unit at $ 4.50. So the
demand for total number of unit that is forecasted is 1000000 units. In that case the forecasted
profit is going to be $ 2000000. In case of BB the expected sales revenue is $ 2000,000 by
selling each unit at a cost of $ 6.25 thus the units that is forecasted to be sold annually is
320000 and the cost of production of BB is $ 2.8 in each unit thus the total possible profit that
the company can make is $ 1104000.
There is an optimum level of production that should be done so that maximum profit should
be generated in each of the products are WFC should produce 3000000 units, MFC should be
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1000000 units and bb should be produced at 320000 units to according to the sales forecast
so that each of the units are sold out. This method is used in the classic supply chain
management approach. According to this approach the demand is forecasted as accurately as
possible and supply is done accordingly.
Transportation cost can be regulated by optimum level of loading of the truck and also
providing the cheapest means to deliver the product to the customers. The loading of the
truck has become an issue in the Johnson’s products. The capacity of the truck is 100 cubic
metres but the truck is only able to load 70 per cent of its capacity because as soon as 70 per
cent of the truck is loaded the weight of the product reaches its upper limit. There is no
particular solution to it except some products has more units in lesser volume this can be
utilised in case of loading the truck. The MFC, BB and WFC weighs in this order as a result
trucks can be loaded with a mix of various volumes of products to generate a balance.
The distribution of the products from each of the centre also plays a crucial role in the cost of
the product. Table 5 shows the quantity of truck load and its expense to the various parts of
the shops and it is also mentioned regarding the expenses of each of the storehouses has to
spend in each of the location as a result it can be stated that the storehouse in California
should send products to northwest as a priority and rest of the storehouses should only
produce back up to California in the northwest zone in case it is needed that too in the order
of preference first Kentucky and second new jersey. The south however should be supplied
by New Jersey followed by Kentucky and California. Midwest should be supplied by
Kentucky followed by New Jersey and California. Southwest should draw its supplies from
California followed by Kentucky and New Jersey and finally the northwest should choose
supply from California followed by Kentucky and New Jersey. If this order is being followed
there is going to be uniformity in the distribution of the product and thus making the supply
chain the most effective.
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acturing inputs; such as bottle, Shea butter, Ocean Mist, Fresh Sky, Mountain Air
Direct Cost
Transportation Cost per Truckload
Cost of installing hardware and software network for regulation of the
Process Cost Technology Cost
Allocation of cost in to different categories
Some common method of reducing time cycle is to perform activities at a parallel time.
Changing consecutiveness of actions, interruptions should be minimised, improvisation of
timing.
Framework for the current cost allocation
There are 3 types of cost that is being allocated that is direct cost, process cost and
technology cost. The direct costs involve the cost of the products that is the manufacturing
costs that is the cost of each of the products and each of its ingredients (Dekker, 2013). The
process cost involves the supply chain management costs like the transport, logistics etc. The
third is the technological costs which include various software and hardware issues that a
company has to deal with. In the case scenario of Johnson skin care the direct cost and the
process cost is being mentioned.
Recognise pricing point of products (what the market sustain)
The pricing point of a product refers to the price of a product with which the product enters in
to the market with a view that with the current price the product will be easily able to handle
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the current competitive situation of the market [as given by the prices of the similar products]
and be able to make good sales. However the price of the product may alter with the changing
demand condition. However here as the price of the substitute products are not available so
we are assuming that the business has decided to enter in to the market with a price that will
just cover the manufacturing cost with a 28% mark-up over it [As given by the historical
operating profit margin ]
Bottle Shea
Butter
Ocean
Mist
Scent
Fresh
Sky
Scent
Mountain
Air Scent
Labor
cost
Packing
cost
Total
cost
per unit
price
point
with
28%
mark-
up over
unit
cost($)
Per
unit
cost($)
0.6 0.8
0.25 0.2 0.3 0.4 0.5
WFC 0.6 0.8 0.25 0.4 0.5 2.55 3.264
MFC 0.6 0.8 0.2 0.4 0.5 2.5 3.2
BB 0.6 0.8 0.2 0.3 0.4 0.5 2.8 3.584
Here it has been assumed that to produce each units of the product 1 unit of ingredient inputs,
1 unit of labour and 1 unit of packing materials are to be used
Vendor rating system (supplier selection)
Selection of appropriate vendor or supplier is one of the most prominent functions of the
logistics management. In supply chain management the pricing is always considered as the
most important factor in deciding the supplier. The lowest bidder is considered as the ideal
supplier. In most of the cases the company’s focus on the core competencies of the company
and the portion that is not possible for them is outsourced by the company. The company has
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two suppliers one in California and another in New Jersey. The transportation of the from
new jersey is most convenient as most of the distribution centres with high demand that is
northwest and south DCs are easily accessible from the new jersey centre. The California
branches are in advantage only with the southeast and the northwest distribution centres.
These two distribution centres has the least demand. Again the New Jersey distribution centre
produces MFC and BB and the California is only producing WFC. Thus in all cases it can be
considered that the New Jersey suppliers if are able to produce the product WFC than they
can be considered as the only supplier of the company. The choosing one supplier is going to
reduce various complicacies. There is a single source to whom both of these plants cater to as
a result there is no clash but there is possible benefit in making the new jersey plant the single
source of supply because this plant has the capacity to provide material to the various
distribution centre in lower cost.
The various method of vendor rating system includes categorical plan, weighted point plan
and cost ratio plan. The categorical plan takes into concern the products type and its supplier
but in the case of Johnson similar quality of product is being supplied by both the plants, in
this method some weight age is associated with the information that is gathered through the
categorical plan and thus an analysis is conducted to select the ideal supplier. The cost ratio
analysis considers the cost of the products as the basis of the selection of the ideal supplier of
the company. In this process cost ratio is generated and it is compared with each of the
suppliers to locate the supplier whose services are most beneficial to the company in terms of
cost. Thus the cost ratio technique is considered as the most feasible method in measuring the
perfect supplier in modern supply chain management. This method has to be applied in the
case of Johnson to decide the supplier who is of more benefit to the company.
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Inventory control methods to be deployed
Inventory control is a key aspect in supply chain management. It can be easily understood
that having extra inventory causes extra expense on the part of the company. The inventory
carrying cost of the Johnson is approximately 18 per cent based on the average inventory per
year. There are 6 established methods of controlling inventory (Melo et al. 2009).
 Predetermining annual stocking policy: according to this method it is the
responsibility of the company to decide the upper and lower limit of inventory that
can be stored by a company.
 Preparation of inventory budget: through this method the company calculates the
possible inventory expenditure in the budget of the company and thus the pricing and
other such expenses are going to be charged.
 Enterprise resource planning: according to this method using of enterprise resource
planning is done so that a constant track of the inventory can be kept by the company.
 Inventory turnover ratio: according to this method inventory turnover will be
calculated by the company (Tayur et al. 2012). Through this method the company
adopts a stock clearing sale of the products that are saved in the inventory.
 Analysis and classification of inventory: inventory analysis and classification is to be
done so that the warehousing of the inventory can be done effectively and thus
making room for inventory storage in the most effective way.
 Optimise purchase pattern: the last method of inventory management is the method
of proper production or purchase of inventory so that there is no expenses done on
the storage of inventory (Frisk et al. 2010). That is the production or purchase has to
be done on the basis of proper forecasting.
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The optimised purchased pattern has been the policy that should be adopted by Johnson skin
care so that there are no expenses that has to be done for the sake of inventory. The inventory
storage rate of Johnson skin care is around 18 per cent which is quite high. The company has
good forecasting technique and proper forecasting has been done about the possible demand
in the market. Thus the production of the products should be regulated accordingly to save
expenditure on inventory.
Implementation plan for new framework of the distribution system
Implementation of plan is done through an action plan. An action plan involves certain steps
that should be taken to achieve a specific goal. The actions that are to be taken to reduce the
excess expenditure and develop the current improvised scenario are mentioned in the action
plan. An action plan has been developed for this current case scenario.
Objectives Methods
Dealing with high inventory rate Inventory rate is very high for the Johnson skin
care. The rate of interest is around 18 per cent.
Inventory can be reduced by developing a proper
manufacturing pattern following the sales
forecast.
Improvisation of logistics Logistic can be improvised by developing the
logistics from new jersey staging warehouse
which has a geographic advantage
Maximisation of profit Profit maximisation can be done through
developing a sound logistic and purchase plan
Developing accuracy in purchasing Purchasing accuracy can be developed by
following a optimised purchase pattern.
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Recommendation regarding the company’s policy of offering all its
customers for the same service level (three-day fulfilment cycle)
The changes that can be introduced by the company are as follows:
 The company should manufacture according to the forecast
 The transportation or the logistic can be improved by arranging an improvised logistic
plan from making transportations form the new jersey plant which is going to make
the transportation least expensive.
A three day fulfilment cycle shows the places or aspects of supply chain management that
can be improvised to make the entire process that is from the receiving of the order till it’s
delivered to the customer. The order fulfilment cycle that is followed by the company is done
every 3 days and thus the cycle is also a 3 day cycle. The 3 day fulfilment is a traditional time
period of order fulfilment cycle. This cycle of Johnson skin care depicts the key
improvements that are suggested to the company along with the factors that has improvised
itself to have a reduced time period.
Before
Order receive Manufacturing Transportation
Order cut off time transportation cut off customer receives
After
Sales forecast Manufacturing Transportation
Order cut off transport cut off customer receives
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Conclusion
In conclusion it can be said that the venture undertaken by the company has possibilities of
success. There are certain improvisations that need to be implemented to make sure that the
planned profit is realised by the company. Certain recommendations are developed in this
report regarding the manufacturing, costing and logistics that are to be followed by the
company. It is important for the company to follow the required action plan to earn success in
this venture.
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Reference list
Papageorgiou, L.G., 2009. Supply chain optimisation for the process industries: Advances
and opportunities. Computers & Chemical Engineering, 33(12), pp.1931-1938.
Dekker, R., Fleischmann, M., Inderfurth, K. and van Wassenhove, L.N. eds., 2013. Reverse
logistics: quantitative models for closed-loop supply chains. Springer Science & Business
Media.
Melo, M.T., Nickel, S. and Saldanha-Da-Gama, F., 2009. Facility location and supply chain
management–A review. European journal of operational research, 196(2), pp.401-412.
Tayur, S., Ganeshan, R. and Magazine, M. eds., 2012. Quantitative models for supply chain
management (Vol. 17). Springer Science & Business Media.
Frisk, M., Göthe-Lundgren, M., Jörnsten, K. and Rönnqvist, M., 2010. Cost allocation in
collaborative forest transportation. European Journal of Operational Research, 205(2),
pp.448-458.
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