The Replenishment of Liquid Dairy Products - The Operational Order Fulfillment Process and Challenges of Including an ARP
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The process of replenishing inventory is very important for efficient operations in the food supply chain. A steady supply of food is a cornerstone for modern societies and the food industry plays a vital role in providing the foods the customers want in a timely manner. The process of replenishment involves both controlling the inventory and the actual replenishment of products. Although the replenishing of inventory process is a seemingly simple one, the actual performance of this process comes with a huge set of challenges tied to it. The industry specific challenges for replenishing food inventory are also different from the challenges faced in other industries. Several products in the food industry are perishable, an example are liquid dairy products. The quality of a perishable product deteriorates over time, and when they reach their expiration date they lose all their value, both to the customer and to the owner of the product and is considered waste. If a product is wasted, there are lots of financial and other types of investments that get lost. Not only has the product itself costed money, the logistics cost, the production cost and the effort from the entire SC to sell the product is lost. It is therefore crucial for the replenishment process to be as efficient as possible.The order fulfillment process is an important part of the replenishment process as it is the process where customer demand is realized. The order fulfillment process consists of two levels, the strategic- and the operational level. In more specific terms the strategic level of the order fulfillment process considers manufacturing, logistics and marketing requirements to design the distribution network, while the operational level of the order fulfillment process defines the specific steps regarding how customer orders are generated, communicated, entered, processed, documented, picked, delivered, and handled after delivery.In a traditional dyadic supply the replenishment process is a clearly divided process between a supplier and a retailer. The retailer is responsible for determining the order quantity and the suppler is responsible for supplying what has been ordered. However, in recent years several actors in supply chains have realized that there is a potential for improving supply chain performance through collaborative efforts often termed Automatic Replenishment Programs (ARP). The overall aim in an ARP is to replace excess inventory with increased information sharing. ARPs are proven to be a more effective replenishment process than traditional replenishment, and are therefore being implemented in several different supply chains.The overall aim of this study has been to investigate the operational order fulfillment process for liquid dairy products and identify challenges with including an ARP in this process. It has done so by answering the following two research questions; 1. What features characterize the operational order fulfillment process for liquid dairy products? 2. What are the main challenges of including an ARP in the operational order fulfillment process for liquid dairy products?It has done so through a literature study and a case study. The main focus of the literature study was to understand the following concepts; the replenishment process, replenishing strategies for perishable products, the operational order fulfillment process, and ARPs. The main focus of the case study was to understand how the replenishment decision for liquid dairy products is controlled in stores, to understand how the operational order fulfillment process is carried out for two different types of liquid dairy products, and to identify challenges tied to including an ARP in the operational order fulfillment process.The study s conclusion to research question 1 is, on the basis of the findings from the literature- and case study, that the operational order fulfillment process for liquid dairy products can be characterized by the following features;- A high level of dependence between supplier and retailer.- An innate inaccuracy in the incoming orders.- The operational order fulfillment process is designed around product characteristics with product quality as the top priority.Two figures that demonstrate these features have been created.The study s conclusion to research question 2 is, on the basis of the findings from the literature and case study that the main challenges of including an ARP in the operational order fulfillment process are;- Low accuracy in the current inventory levels in the store makes it difficult to suggest correct order quantities.- Order lines are cancelled if the supplier does not have the order line quantity on hand.- Creating a common measurement of performance for the ARP.For these challenges propositions as to how they can be solved have also been made.