Supply Chain for Palm Oil and Suggested Improvements

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Table of Contents

How the Palm Oil Product Fits With a Theoretical Model of a Supply Chain
The Key Issues Within the Supply Chain
Potential Areas for Development and Improvement Along the Supply Chain
References

How the Palm Oil Product Fits With a Theoretical Model of a Supply Chain

From the onset, palms are grown in the fields until maturity, upon which they are harvested. Palm farming can either be subsistence or large-scale so that people who harvest the product from small farms sell them to companies who may accumulate the palms before transportation. After harvesting, the product is then transferred to the mills through road, train, or any other available method. At the mills, the product is reduced into granules using available specialized equipment. Depending on the supply chain setup, the finished goods are collected at a collection port to accumulate them, which means that they would be transported in bulk to minimize the number of trips and the associated transport costs.

The product is then transferred to a refinery industry for further processing; the plant may also store it temporarily, awaiting subsequent handling. The refinery has a fractionating column that aids in separating the palm components such as stearin, and olein, which is the principal constituent. Manufacturers can then use stearin to make margarine. The business could make other products such as cookies. Once finished goods have been manufactured, the company has to identify the best distribution channels to ensure broad market attainment. Some of the distribution channels which firms can consider include vendors, wholesalers, and retailers.

The Key Issues Within the Supply Chain

There is a need for effective risk management in the supply chain. It is essential for success in incidents such as natural disasters, unsettled bills, and transport disruption. The process will help in preventing losses and provide mitigation methods if risks happen. Managing perils will also help to safeguard an organization’s reputation and promote customer satisfaction. On the other hand, the supply chain should be flexible to bear the uncertainty in the market which is caused by socio-political events and changes in customer demands. Flexibility refers to an organization’s ability to efficiently respond to changes in time, product cost, and performance. Flexible supply chains are adaptable to market shifts and responsive to changes in demand and supply.

Potential Areas for Development and Improvement Along the Supply Chain

This paper will use the transaction cost economics theory to highlight some of the palm supply chain areas, which can be improved. According to Fayezi and Zomorrodi (2016), the concept holds that the cost of the good or service should comprise all the hidden costs during an economic exchange. The theory argues that for an organization to achieve economic efficiency, it has to strategize on reducing the costs of exchange. It states that each transaction generates coordination costs of supervising, controlling, and managing dealings. Since Fayez and Zomorrodi credit this model with the ability to solve several issues in the supply chain, this study will apply it in resolving some areas of concern in the palm oil scenario.

Risk Management

The supply chain requires the stakeholders to have a comprehensive procedure to manage risks with regards to traceability of mills, risk assessment, and encouraging physical certification and authentication. This enables the participants to focus their energy and resources on matters and areas of most significant hazard to order their activities, collaboration efforts, and investment in suitable ways. When the risks are adequately mitigated, the cost of exchange will be reduced, for example averting perils such as losses due to bad roads by optimizing or repairing roads.

Time Management

Shortening the time taken in moving products from one stage to another will minimize direct transport costs. One way of shortening the transport duration is to optimize routes, build mills, and collect points closer together and near the agricultural fields. Since the main aim of transaction cost theory is to reduce expenses as much as possible, there is a need to reduce the time and distance of moving products.

Flexibility

The supply chain needs to be flexible in how it works. It should be dynamic and able to respond to customer demands as they arise. In essence, the framework should be as agile as possible to achieve adaptability. For instance, if a user’s demand for palm oil reduces, the producers should consider a broader market to spread the risk or reduce their output volume. The move can help in reducing losses that may be related to transport costs and inventory management.

Quality Management

Good quality goods produced to meet customers’ growing demands would mean that the latter receive value for money. If stakeholders can consider improving product usefulness, clients will be motivated to buy them. The organization may not sell Low-quality items promptly, resulting in a high cost of maintaining inventory. Furthermore, the products could be spoilt, or the business may decide to sell at a throw-away price; these will automatically attract losses and additional expenses.

References

Fayezi, S., & Zomorrodi, M. (2016). Supply chain management: Developments, theories, and models. In Christiansen, B. (Ed.), Handbook of Research on Global Supply Chain Management (pp. 313-340). IGI Global.

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