Rethinking AFSA Supply Chain Strategy

Rethinking AFSA Supply Chain Strategy

Miguel Angel Alvarado (Universidad del Pacífico, Peru) and Mario Chong (Universidad del Pacífico, Peru)
DOI: 10.4018/978-1-7998-0202-0.ch019

Abstract

AFSA is an industrial company that produces flexible packaging and has more than 200 plants on five continents. It has an important presence in South America with five plants in the region. Among its main features is to supply other industries (B2B) produce under the strategy make-to-order, with local, regional, and corporate hierarchies. Its value proposition is aimed at delivering superior customer service to the market with innovative and quality products. However, due to the acquisitions that the company has made in the last two years in different countries of the region and the growth in the consumption of flexible packaging, the strategies among the different areas of the company have not been aligned, creating incompatibilities between the strategies of the functional areas like sales, operations, finance, and supply chain. This chapter proposes to optimize the supply chain of AFSA, using a strategic methodology of diagnosis and operational analysis to have a multidimensional approach that allows for decision-making.
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Introduction

This document is part of the opportunities that AFSA has to reduce its inventory levels and reduce the logistics cost of spare parts, optimizing its supply chain. Currently, the value of spare parts inventories is US $ 3.5 million, with 95% of spare parts that have a consumption frequency of less than six months during a year.

On the other hand, the company has a strategy of working under order which requires that the machines are 100% operational as an unexpected stop for repairs or waiting for spare parts may mean that the dates or quantities will not be met of delivery to the client due to the fact that we have a machine employability of 75% to 100% that does not allow us to transfer production to other machines.

Through the present investigation it has been possible to identify that the biggest obstacles of this business model are the low compatibility that exists between its strategies (for example, the lack of differentiation by type of good of the actual purchasing strategy for spare parts get into conflict with many of the cost-minimizing, resource administration, strategies.), which has generated an increase in the value of inventories of spare parts and in the cost of spare parts.

There is also a problem with human resources that is related to company strategies as follows: the low compatibility between company strategies may be due to an inconsistence of internal objectives (for example two production areas pursuing different objectives). This point, in particular, deserves especial attention and its coverture is beyond the main topic of this work (that is spare parts management).

The use of the risk-cost matrix will allow defining strategies by family; then, the planning of the demand for the spare parts will help to have a better visibility of future needs and will complement the strategies defined in the risk-cost matrix. Finally, the implementation of the centralized warehouse of spare parts will reduce the value of the inventory of spare parts, which will be reflected in a lower capital of immobilized work.

According to a Market Research Report made by Grand View Research (GVR) in 2018, the flexible packaging industry has many important linkages with other industries, that’s why it is of vital importance in generating employees and encouraging production and commercialization. It also produces a positive impact on industry integration, as an enterprise (like AFSA) can sell packaging products to clustered industries or encourage the clusterization (Morris, 2016 and Säilä, 2018). In Peru, following MINCETUR characterization (2019), many companies produce packaging products for a wide range of different business (for example, construction business, commercialization, transport, etc.). It is also important to consider that the market is regulated, mainly because flexible packaging production is potentially dangerous for the environment as it produces many kinds of wastes (Säilä, 2018 and Narancic & O’connor, 2019).

The flexible packaging market in South America is dominated by Brazil, which has 48% of total sales in the region, followed by Argentina and Colombia with 10%, respectively, and the remaining 32% is distributed in more than 10 countries. In total, Latin America has a potential market of US $ 5 billion with an estimated annual growth rate of 3, 7% due to the increase in population, better standard of living, expansion of processed industries, and others. In addition, factors such as the greater penetration of retails, greater number of young people living alone, and the entry of more women into the workplace, allow that in countries such as Bolivia and Peru there was a 6% growth in sales of Flexible packaging in 2016, according to information from PCI Films Consulting LTD 2005 (2015).

Around 98% of production in the region goes to Latin American markets, only 2% goes to the North American market, which means that the region is self-sufficient since imports are less than 1% to places outside of the region.

Figure 1 indicates the market share of PET-RPET firms in Latin America, as can be seen, the Food and Beverage segment represents 76% of sales in the region, with dehydrated foods being the largest segment with a 15% share.

Figure 1.

Market share in Latin America

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Source: PCI Films Consulting LTD 2005. Author’s own elaboration.

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