It is an undisputable fact that over the years logistics has made a substantial contribution to businesses. Today, a number of companies such as Coca Cola Company has attained competitive advantage through an improved management of its supply chain (Cooper et al. 1992). Coca Cola's strategy is emphasized on excellence in logistics; sourcing material management and physical distribution relative to the production location. Coca cola relies on imported componentized parts from a wide range of suppliers in different countries to produce its products and assemble it in another country. The thrust behind the logistics and supply chain activities has been the transportation industries culminating globalisation.
According to Cushmann & Wakefield (2006) the ongoing globalisation of production inculcating business practices such as outsourcing and restructuring as well as the integration of regional economies in the logistics market has been pragmatic within the European regions and other parts of the world. This has also necessitated the creation of modern logistics and distribution facilities such as distribution centres, warehouses and transfer depots to promote efficiency in the managing the supply chain activities as a whole (Rushton et al., 2000).
The London 2012 Olympics is almost two years ahead and the Strategic Supply Chain Managers of a company have been tasked to design Coca Cola supply chain for the event. Therefore the paper aims at strategically designing the Coca Cola supply chain for the event ranging from the upstream, distribution and downstream flows considering the logistical and material handling activities.
To begin with, it will be significant for the managers to make estimation on
the number of people that will attend the 2010 Olympics
the number of coke cans to be consumed daily (considering the days the event will be last)
the number of containers to be shipped for the whole event.
Secondly, the managers have to understand the theories and models developed by economic experts so that the managers will strategically produce the coca cola at a place or places where majority of the raw materials and related auxiliary services are located.
Location theory
The definition provides the organisations with a new fundamental focus that managers has to deal with in gaining advantages (Carmignani, 2009) on the market in regards to identifying and locating the inputs required in the upstream to be processed into output for the downstream. McDonald and McMillen (2006) stated that for worldwide companies such as coca cola the weight-gaining production process and the transportation cost determines its input location. The inputs could be either the raw materials and or labour. Furthermore, it is significant for managers to know that there is an additional cost associated with the handling of materials (unloading and loading) during the transportation system. And most a times these activities occur at the transhipment points which requires labour force for the loading and unloading operations (Harrington and Warf, 1995). Therefore in the manufacturing industry which requires network of various organisation (Christopher, 1998), firms think of locating to one place where economic activities are located so as to minimize their transportation costs (Glenn et al., 1999).
Fearon (2009) expressed his view based on the mathematical model for locating industries (known as locational triangles) developed by Weber, that input-oriented firms are more interested in locating an industry considering the optimal transportation costs of distance to the "material index"- thus the ratio of the weight of the raw materials to finished product and agglomeration- thus occurs when companies locate to an environment because of the sufficient demand for support services such as facilities that builds and services machines. Similarly, author such as Marshall (1920) re-emphasised that a firm can reduced its transport costs in three ways through industrial agglomeration. Marshall firstly argued that a firm can save its shipping costs by locating nearer to its suppliers or customers. Secondly, he developed the labour market pooling theory to explicate clustering to take advantage of economies of scale correlated to a larger pool of firms and workers. Thirdly, he built an argument in agglomeration linking to the theory of intellectual spillovers stating that firms locate to each other to increase the rate of innovation through shared knowledge (cited in Glaeser and Kerr, 2008).
Having recognised the theory of location, the managers have agreed to conduct some research on the raw materials that will be required in the primary stage of the Coca Cola manufacturing (upstream flow) including the aluminium coke can and one of the ingredients used in the Coca Cola liquid itself. The ingredient used in Coca Cola includes refined sugar (or calorie- safe for diabetics), caramel, caffeine, phosphoric acid, coca leaf and kola nut extract, lime extract, flavour syrup, vanilla, purified water and carbon dioxide (Huey, 1997). The managers have also agreed to source for use sugar during the production.
Aluminium and Sugar producing countries/regions
Aluminium is primarily produced from bauxite ore which undergoes three major steps; the bauxite mining, alumina production and electrolysis. And for logistics reasons, alumina refineries are normally located nearer to the bauxite mines. Aluminium production involves lots of resources and for it production to be sustained, the producers engage in recycling aluminium from process scrap and used aluminium products (European Aluminium Association, 2010). Therefore the use of aluminium beverage can is seen as the most sustainable packaging material because it protects its contents, is cost-effective and can be recycled after it usage (International Aluminium Institute, 2009). A research revealed the below countries/regions as the main aluminium production areas.
Figure1: the main aluminium production areas (EAA, 2010).
It is an undisputable fact that aluminium production requires lots of energy
Sugar is extracted from either sugar cane/sugar beets. According to Workman (2007) three quarters of the world's sugar processed from sugar cane is grown in the tropical zones including Brazil, India, China, Thailand, Pakistan and Mexico whereas the remaining which is produced from sugar beets is located in the temperate zones including France, Germany, U.S.A., Russia, Ukraine and Turkey.
Primary production of Coca Cola
The managers of Coca Cola have decided to strategically focus on China for its primary production. This because China is endowed with raw materials such as bauxite ore and sugar cane and factories that processes the raw materials into aluminium cans and sugar. Moreover it has extensive supplies network in countries like India, Thailand, etc (Schwab and Porter, 2008) who also produces some amount of sugar and aluminium. Besides China have the workforce, energy and infrastructures including roadways, railways, waterways, ports and terminals (CIA, 2010). In support to its energy resources, China in 2009 commissioned an enormous inexhaustible hydroelectric dam built on the Yangtze river near Yichang which is capable of generating 1/9 of China's total power output (CGEE, 2009)
According to the Huazhou (1989) majority of China's bauxite ore deposits is located in the Shanxi, Shandong, Guizhou, Henan, Guangxi and Yunnan provinces. From the below map, the towns within the provinces where the ore will be extracted from includes Taiyuan, Quindao, Guiyang, Nanning, Zhengzhou and Kunming. The ore is transported by trucks to the reduction mill where the ore is reduced into calcine - a concentrate that is ready for smelting. Trucks then transport the calcine to the smelting and rolling factory to process it into alumina (AME Mineral Economics, 2010). According Rio Tinto (2010) the smelting and hot and cold rolling stages are integrated. And this refinery process is called the Bayer process. This continuous process, so immediately the alumina is produced it undergoes the hot and cold rolling mill which is processed into aluminium molten through electrolysis. This further processed into rolling ingots or sheets (European Aluminium Association, 2010). This aluminium sheets is conveyed to the can factory by train to be manufactured into coke cans in Beijing, Tianjin and Shanghai.The above processes are carried out around the same vicinity in each town to reduce costs and facilitate the process (Goliath, 2008).
Figure 2: map of china (Source: Adapted from Professional China Tour Service, n.d)
According to Petry and Junyang (2009) annual report on sugar, Guangxi is the dominant sugar cane producing province which accounts for about 60% of China's sugar production. The other province includes Yunnan, Guangdong and Hainan. Sugar manufacturing company is located in towns of the mentioned provinces including Nanning, Kunming, Datong and Haikou, shown in figure 2. The sugar production processes involving the sugar cane cultivation and harvesting, then transported by truck to the processing plant where the sugar is produced which involves extraction of the cane juice, juice treatment, juice boiling, cleanliness and yields (SCTD, n.d). The sugar is produced within the mentioned towns. Also in Guangxi province, the sugarcane leaves and tree barks is used to generate electricity for the sugar production (Xinhua, 2010).
Whiles the empty coke cans is finally moved to the bottling factories in Beijing, Tianjin and Shanghai by trucks, the sugar is also be transported to the same bottling factories where the Coca Cola liquid itself will be produced (Coca Cola Company, 2009). The train routes which are used is shown in appendix; figure
The production of the aluminium can and sugar is within these areas dur to Webers theory of location.
Distribution flow of Coca Cola
The manufactured coca cola in Beijing, Tianjin and Shanghai will be transported to the European distribution centre based in Munich, Germany. In the Beijing bottling factory, the palletized canned coke will be packed into 40ft containers and moved to the main Beijing-Hamburg railway terminal by train. The containers will be loaded onto freight train to be transported from Beijing to Hamburg. The train routes passes through Mongolia, Russia, Belarus and Poland to the Hamburg rail terminal (BBC report, 2008). The rail shipment will take 15 to 18 days (Lloyd's, 2008).
Meanwhile the palletized canned coke produced in Tianjin and Shanghai will also be packed into 40ft containers and moved to the Tianjin and Shanghai Ports respectively by train. The containers are then loaded onto containerships bound for deep-sea shipping from the various ports which will make a stop at Hamburg Port. The sea route linking the China ports and Europe passes through the Southern parts of China, Malaysia, through the Suez Canal to Malta, Belgium to the Hamburg Port (Xinhuanet, 2004). According to Lloyd's (2008) the 20,000km sea voyage takes 35 to 38days. Branch (1996) viewed shipping as the transportation of goods from place of low utility to place of high utility. The goods may be in the form of either raw materials/intermediate/finished product transported in bulk cargo shipment to a refinery or range of durable consumer products shipped in containers.
In Hamburg the containers that were transported by rail from China will be unloaded and transferred onto another train for on carriage. This is termed as . Also the remaining containers that were shipped by sea when unloaded in Hamburg will also be transferred onto train for on carriage. This is known as . The trains then transport the containers from Hamburg to the European Distribution Centre in Munich, Germany. The rail route from Hamburg passes through either Berlin-Frankfurt/Dusseldorf-Stuttgart route to Munich (Martin, 2003).
Coca Cola uses Germany as its distribution centre in Europe because it has the logistics whereby several east-west trade routes run through Germany (Cushmann & Wakefield, 2006). Also the centre ensures effective inventory management system, advanced monitoring and customer information system, reliability and flexibility in distributing the coca cola to the clients across the region (European Intermodal Association, n.d).
Downstream flow of Coca Cola
From the distribution centre in Munich, the containers will be transported to London. Because of the logistics cost and lead times, the managers agreed to convey the containers by rail to Hamburg Port. The containers are unloaded from the train and loaded onto available feeder containerships bound for short-sea shipping that makes a direct call to the Tilbury Docks. The containership navigates through the English Channel to Tilbury Docks. The Tilbury Docks located in Essex which is under the Port of London Authority serves as London's major distribution hub for South East England (Forth Ports Plc, 2010).
In 2004, the Tilbury dock was upgraded with railway lines to augment the container movements (Cuthbert, 2004). When the containerships arrive in the Tilbury Docks, the containers are discharged unto train and conveyed to the Regional Distribution Centre. In the Regional Distribution Centre, the seal of the containers are broken and the palletized canned cokes are unstuffed from the containers into trucks deliver the items to the right retailers at the right place, in right time, right condition and at right cost ( ). The retailers will move canned coke to the Olympics sites by lorries.
As part of their corporate social responsibility (CSR), coca cola in partnership with Waste & Resources Action Programme (WRAP) is embarking on a strategic recycling initiative by launching 'Recycle Zones' in Southampton City which to date have collected 20 tonnes of material for recycling (Harry, 2009). This sustainable business approach is aim at achieving continual zero waste during the London 2012 Olympics and foreseeable future. Coca Cola is planning to create 80 Recycle Zones by the end of 2011. The high profile locations include the London eye to shopping centres, hospitals, Thorpe Park, Manchester Airport, university campuses and city centre locations (Guha, 2010).
Advantages and Disadvantages of the selected intermodal choice
According to Branch and Stopford (1997) the main advantage of shipping is the ability to transport bulk cargo across long distances. It also remains the most effective and economical means of transporting heavy goods (Cushmann & Wakefield, 2006). Carr (2009) claim that the use of sea transport significantly lowers emissions, reduces supply chain cost and congestion on roads. Equally Davies (2009) stated that shipping is the most carbon efficient and sustainable means of transporting freights, claiming that newly built ships emits 5g of CO2t/km compared to 50g of CO2t/km of heavy trucks or 540g of CO2t/km of modern cargo plane. However, for sea transport speed is not quintessence (CIPS, 2003) so it suffers the disadvantages of being relatively slow compared to other transport modes (Badger et al., 1993). Also tides do restrict the movement of vessels in and out of ports.
On the other hand, the rail freighting also offers the advantage of conveying large volume of goods over long distances at greater speed and eliminating freight traffic from congested road networks (CIPS, 2003). Rail movement is most economical in complete train load operations and in circuit working (Branch, 2001). Also it is perceived that railways are more environmentally-friendly than other forms of transport (Gubbins, 1988). The railways are least affected by bad weather compared to all the land-based modes (Gubbins, 1988). However, one of the major weaknesses of the railway is the inherent inflexibility of operation due to its fixed tracks (Gubbins, 1988), hence lacks the versatility compared to road.
The road networks provide the most flexible and versatile form of freight transport and ubiquitous offering door-to-door transits, whiles providing the main collection and distribution network when other modes are used for the main haul (Badger et al., 1993). Vehicles are relatively reliable with little damage/loss in transit and relatively cheap to maintain (Gubbins, 1988). Moreover it's easier to calculate the cost of operations on road haulage than on the railway because the transporter is able to envisage profitable and non-profitable contracts (Lowe, 1989). However, it is perceived that the environmental impact of vehicles is severe as they produce noise, air pollution, structural damage and visual intrusion (Lowe, 2003). In terms of carriage of bulk commodities, vehicles have low capacity compared to barge/coastal ship and train (Gubbins, 1988).
The design of the coca cola supply chain will not involve the use of air transport even though it provides greater speed of travel. This because of its limited capacity (CIPS, 2003). Moreover air transport is very expensive for shippers (Branch, 2001).
