Business Finance
Supply Chain Management Vidrieria Argentina S.A. (VASA) Transportation

Question Description

write one year summary about the case attached.

  • Key Problems to Solve
  • Your recommendation (i.e. specific actions to take)
  • Benefits of your recommendation
  • Risks to the success of your recommendation

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NA0247 Rethinking Distribution Logistics at VASA, Pilkington Julio Sanchez Loppacher, IAE Business School Marcelo Pancotto, IAE Business School Maximiliano Fernandez Vera, IAE Business School L eopoldo Garcés Castiella, the CEO of Vidriería Argentina S.A. (VASA), was preoccupied with the fast deterioration of the company’s delivery service, the increasing number of customer service problems, and the ensuing complaints, an unheard-of situation until recently. It was mid-2008, and these complications were jeopardizing the solid reputation of VASA, a glass manufacturing company, as the favored supplier in the Argentinian market. Garcés Castiella was an industrial engineer with over twenty years of experience in the glass industry and a successful management track record in the company. During the previous two years he had been based in Brazil as regional manager before his appointment as CEO in 2008. VASA’s performance in customer service, considered crucial for success in the glass industry, was beginning to decline. In addition, VASA’s market leadership was challenged by international competitors in the domestic market amidst a soaring demand for glass, which was propelled by the expanding local economy. Garcés Castiella was considering a turnaround in the logistics strategy for the company’s local customer network. He identified three basic alternatives: transforming the two transportation companies that had traditionally provided the distribution service, replacing them with more sophisticated logistics suppliers, or taking total control of distribution to customers by developing a VASA-owned delivery service. Said Garcés Castiella: We are going through one of the best times in the industry with our distribution logistics in the hands of two transportation companies. Our responsiveness and fast delivery service are no longer the pride of our company; in fact, they have become a nightmare. It is time we took control and solved this transportation problem for our customers. Copyright © 2013 by the Case Research Journal and by Julio Sanchez Loppacher, Marcelo Pancotto, and Maximiliano Fernandez Vera. The authors wish to thank Leopoldo Garcés Castiella, VASA’s CEO, for his cooperation and consideration in preparing this case. The authors also wish to thank the anonymous reviewers who provided very useful comments and suggestions and Debbie Ettington for her insightful comments and recommendations that strengthened the case. Finally the authors wish to express their gratitude to IAE Business School for supporting the publishing of the case with financial means. Rethinking Distribution Logistics at VASA, Pilkington 15 This document is authorized for use only by Liwen Liu ( Copying or posting is an infringement of copyright. Please contact or 800-988-0886 for additional copies. The Global Glass Industry Glass was an inorganic, hard, fragile, and transparent material with high hygiene and chemical compatibility characteristics that resulted from fusing natural materials such as silica sand, sodium carbonate, and limestone at high temperatures. It was manufactured in high temperature furnaces where mixtures were heated and melted into a viscose, clear, homogeneous liquid, and subsequently subjected to cooling and shaping techniques in the production of a wide range of products.1 In 2007, the supply of float2 glass—obtained through leading high-demand glass technology—amounted to almost 50 million tons worldwide and was strongly concentrated in four international players that produced and marketed over 60 percent of world production. Three of the players supplied over 75 percent of the glass for the automobile industry. The four players were AGC—Asahi Glass Corp. (Japan), NSG Group (Japan), Guardian (USA), and Saint-Gobain (France) (see Exhibit 1). Global demand was mainly made up of two industrial sectors: construction and automobiles. Of the 50 million tons total, over 30 million tons were high quality float glass, two to three million tons were sheet glass,3 and two million tons were laminated glass.4 The remaining 15 million tons were low quality float glass, mostly produced in China. Although the global float glass market had been rising at a steady annual rate of 4 percent over the last several years, more recently between 2005 and 2008, growth had risen to 7 percent per year driven by the economic recovery and related construction boom in many countries. This demand expansion exposed a capacity problem in world supply with capacity utilization levels ranging between 90 percent and 95 percent. In 2009, the Guardian group was expected to open a new float glass plant in Brazil. Guardian’s glass production expansion would strengthen its competitiveness in the region and force NSG/Pilkington and Saint-Gobain, Guardian’s major competitors in the region, to hone their operations in order to hold on to their regional market positions. The NSG/Pilkington Group Pilkington Group Limited was created as St. Helens Crown Glass Company in Saint Helens, England in 1826. Based on John William Bell’s technical knowledge and expertise, it was funded by three influential families (the Bromilows, the Greenalls, and the Pilkingtons), who, by applying then revolutionary technology, played a major role in the development of the flat glass industry. In 1952 the company transformed the industry with the development of glass manufacturing technology using float glass, replacing the traditional methodology of double processing based on precision glass rolling and polishing. In 2006, Pilkington stopped trading as an independent company when it was acquired by NSG (Nippon Sheet Glass Co.). This acquisition helped transform “NSG” into “NSG Group”— which maintained the Pilkington brand for all Group flat glass businesses. The NSG/Pilkington Group promoted the development of new markets and business growth using two clearly defined strategies: a) it produced new proprietary manufacturing technologies, and b) it formed joint ventures with other companies in the industry. Its global operations included more than 45 countries, with a strong presence in Europe, Japan, North and South America, China, and Southeast Asia. 16 Case Research Journal • Volume 33 • Issue 1 • Winter 2013 This document is authorized for use only by Liwen Liu ( Copying or posting is an infringement of copyright. Please contact or 800-988-0886 for additional copies. Historically, the Group had shown a preference for joint ventures with partners from emerging economies or with global players willing to operate in countries lacking adequate technical knowledge. Joint ventures with global competitors included agreements with Saint-Gobain in South America, and Shanghai Yaohua Pilkington and China Glass Holdings in China. Vidriería Argentina S.A. (VASA) Vidriería Argentina S.A. (VASA) was created in 1938 as a joint venture between NSG/ Pilkington and Saint-Gobain, its French competitor. Since the 1980s, VASA had been the undisputed leader in the Argentine market, and by early 2000, it had become a leading glass manufacturer in South America through its operations across the continent. Estimated revenue for 2008 exceeded US $100 million5 (Exhibit 2). VASA’s stated value proposition was to “offer a full range of products” and “deliver in due time and manner” (the following day from date of order placement). It offered a wide range of products made up of 600 SKU6 varying in type, color, thickness, length, and width. With such a value proposition, VASA managed to protect itself against the threats posed by imports produced by regional competitors without production facilities in Argentina. Fifty percent of VASA’s production volume represented only 15 of its SKUs (2.5 percent of total SKUs) comprising its highest margin products. Another 40 percent of volume came from 140 SKUs (23 percent). The last 10 percent of volume came from the remaining 74.5 percent of the total product portfolio (450 SKUs), which included special and printed glass. VASA’s plant in Lavallol (Province of Buenos Aires, Argentina) supplied its four basic product lines. Float glass represented 80 percent of production while the other three basic lines, cathedral, mirror, and laminated glass, accounted for the remaining 20 percent (Exhibit 3). Most of the Lavallol plant’s production (95 percent) was for the domestic market. The other 5 percent was exported to Latin American countries such as Brazil, Uruguay, and Paraguay. VASA imported7 only lines it did not produce locally, either because of shortages caused by sporadic excess demand or for products that required technology or installed capacity not available at its local plants. The most common external supply sources were other company divisions based in Brazil, Chile, USA, Mexico, and Europe. Impact of Rising Market Demand Between 2005 and 2008, the local glass market started to experience supply difficulties. After the economic and political crisis in late 2001, Argentina had experienced a period of steady growth leveraged by the government’s plans to reactivate the economy. This had a positive impact on two very sensitive industries: automotive and construction. At the same time, this growth could have been the justification for a government increase in prices for services such as electricity and gas. Limitations in installed capacity to supply a rising domestic market during 2008 forced VASA to seek supply alternatives overseas. Import operations became a central activity and raised costs. However, inefficient planning for import sourcing further increased costs due to importing incorrect product mix quantities and lack of space. VASA was forced to rent more space and duplicate stockroom operations. Rethinking Distribution Logistics at VASA, Pilkington 17 This document is authorized for use only by Liwen Liu ( Copying or posting is an infringement of copyright. Please contact or 800-988-0886 for additional copies. The Group’s plant in Brazil, its main external supply source, could not satisfy VASA’s demand due to rising demand in the Brazilian market itself, which worsened the local supply situation. In addition, the overall international glass market was experiencing high demand. Consequently, VASA had to look for supply sources at greater distances, such as Europe or Asia. Around the same time, Guardian, VASA’s main global and regional competitor, announced the imminent construction of a second float glass plant in Brazil that was expected to supply the unmet demand in Argentina. Customers For clear glass, which represented 80 percent of VASA’s production, its customer portfolio was made up of 75 distributors, mostly local small- and medium-sized companies that met national demand (Exhibit 4). Approximately 60 percent of the distributors operated in the city of Buenos Aires (Capital Federal & GBA—greater Buenos Aires area), while 40 percent served the Argentine provinces (Exhibit 5). VASA did not provide finish processing for its float glass production because it was a wholesale seller; for the most part its distribution-processing customers offered cutting and delivery services to satisfy retail channel requirements. These distribution-processing customers worked with minor retailers or constructor clients to prepare either the orders or the stocks and plan the logistics lead times to receive the glass on time either in the warehouse of minor retailers or on the construction site. The remaining 20 percent of VASA’s production was distributed via one of the Group’s locally-based subsidiaries, Pilkington Automotive, which served the automotive industry. Distribution companies differed greatly in size and infrastructure capacity. These differences affected product delivery time. If a distribution company’s unloading capacity was impaired by a lack of adequate infrastructure (e.g., forklifts or cranes), the resulting delivery delays strongly affected idle capacity of the transportation company’s trucks. Also, most distributors unloaded packages one at a time. Before 2003, VASA had not offered delivery service, letting distributors contract with transportation companies themselves. Because of recurrent problems in delivery service and an unsatisfactory attempt in 2003 to hire a leading international logistics service provider at the Cordoba distribution center, the company decided to take control and manage logistics by directly hiring and coordinating two transportation companies. Encouraged by VASA’s promise of fast delivery, distributors usually worked with low inventory levels; therefore, developing and sustaining an agile and efficient delivery service was critical to VASA customer satisfaction. Although VASA maintained good relationships with and was highly committed to its distributor customers, the rapid deterioration of the delivery service over the last few years jeopardized this long-term association. Another concern was the increasing fragmentation of VASA’s customer base because of retail customers trying to lower costs by coming to VASA directly rather than through the larger distributors. As the geographic distribution of the customers became more scattered, delivery service logistics grew more demanding and complex. 18 Case Research Journal • Volume 33 • Issue 1 • Winter 2013 This document is authorized for use only by Liwen Liu ( Copying or posting is an infringement of copyright. Please contact or 800-988-0886 for additional copies. Order Processing VASA’s Marketing Department was responsible for processing orders every day. Orders were placed directly by customers on an e-commerce platform until 1:00 p.m. the day before delivery was required. Upon placing an order, customers selected product specifications such as type, color, size, and the number of items needed. This platform also allowed customers to find out if these items were in stock and to schedule a window of time for delivery (although often customers did not specify delivery time). The Logistics Department classified customer orders according to such characteristics as size and distance, and established the number and types of trucks required to meet customer needs. By 3:00 p.m., transportation companies would submit truck fleet availability for the next day. VASA then matched deliveries with available trucks, creating a “Trip Schedule Table” (Exhibit 6) that was sent to each transportation company for confirmation. This “Trip Schedule Table” presented the number and the type of trucks each customer needed to receive the order. It was an administrative document used jointly by VASA and the transportation companies. In turn, the Logistics Department developed an operation schedule for the next day’s delivery with the “Orders and Dispatch Schedule Table” (Exhibit 7), which was used internally as the stockroom dispatch program and customer delivery schedules for the next day. The “Trip Schedule Table” set a timetable for loading each order from the stockroom; however, some trucks were late (Exhibit 8). Although the “Trip Schedule Table” did not specify time of delivery to customers, truck drivers often coordinated delivery directly with the distributors’ crew. One transportation company manager commented, “Being able to coordinate a last minute schedule with truck drivers provides greater service flexibility as it allows us to avoid unnecessary delays in queue time and enables customers to adjust their reception operations.” VASA established priority criteria for daily dispatch in the stockroom. For customers located in Buenos Aires and its suburbs, an attempt was made to schedule unloads in early morning hours or before midday, so assigned load hours at the plant were concentrated between 4:00 a.m. and 6:00 a.m. (Exhibit 9). Trucks scheduled for customers located in the inner provinces were assigned loading times between 2:00 p.m. and 8:00 p.m. The Logistics Department determined that for these longer trips it made little sense to load during the morning, since many times it was impossible to deliver on the same day before the distributor’s closing hours; also, truck drivers usually preferred to travel until late night, rest, and deliver early in the morning the following day. The documentation or information process (Exhibit 10) ended when each transportation company submitted the “Delivery Report” (Exhibit 11) to VASA. This form registered the arrival and departure times for each order from VASA’s stockroom. The truck driver later filled out the form with arrival and departure dates and times in the customer’s warehouse. Customers signed the form and noted any additional pertinent information, such as the goods had been delivered damaged. There was one Delivery Report per customer. VASA next transferred all this data to an Excel® spreadsheet and monitored drivers’ punctuality upon arrival at VASA’s stockroom. Rethinking Distribution Logistics at VASA, Pilkington 19 This document is authorized for use only by Liwen Liu ( Copying or posting is an infringement of copyright. Please contact or 800-988-0886 for additional copies. Delivery Management VASA owned two distribution centers (DC): a stockroom in Buenos Aires at the Lavallol plant that centralized reception and delivery of goods throughout the country, and a DC in Córdoba, which supplied the local province and the Northern region of Argentina. The Buenos Aires stockroom had a covered surface capacity of 270,000 square feet with a dispatch capacity of 185,000 tons per year (or up to 360 packages per day) for a range of almost 600 SKUs. The stockroom was a warehouse composed of six adjacent aisles separated by columns. Two overhead cranes (one for 6 tons and the other for 20 tons) that ran along each of the six aisles were used to move merchandise within each aisle. Forklifts were used to shift goods from one aisle to another aisle, but these forklifts were limited by the layout of the stockroom and the way packages were stored. Glass sheets were stored in groups according to type and measurements in preestablished stockroom areas. The loading crew assigned storage areas based on space availability and team loading-unloading skills. The Head of Logistics explained: “Sometimes, the crane operator has to go get a package that is 260 feet away and when he gets to the stowage spot, he may find that eighty sheets have to be removed to get to what he needs. This increases overall order preparation time.” Stockroom operations were carried out in three shifts (from 10:00 p.m. to 6:00 a.m., from 6:00 a.m. to 2:00 p.m., and from 2:00 p.m. to 10:00 p.m.) by dispatch teams, each consisting of a crane operator and an assistant, overseen by the shift supervisor. Although teams were stable, they rotated their assigned shifts on a weekly basis. The supervisors usually rotated with the teams they supervised. Productivity and work pace among teams and shifts differed noticeably, which was generally attributed to supervisors’ different managerial styles. The Logistics Department was in charge of organizing activities in the stockroom. The head of Logistics always checked the following day’s “Orders and Dispatch Schedule Table” (Exhibit 7) and assigned tasks to each shift according to internal operational guidelines. Shift crews included three dispatch teams (with a fourth team on the busier morning shift) and one supervisor. At the beginning of the shift, the supervisor assigned tasks to ...
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