MINISTRY OF EDUCATION AND TRAINING
UEH UNIVERSITY - COLLEGE OF BUSINESS
SCHOOL OF INTERNATIONAL BUSINESS - MARKETING
FINAL ESSAY
Course: ENTERPRISE RESOURCE PLANNING (ERP)
APPLIED TO LOGISTICS SUPPLY CHAIN MANAGEMENT
Student name:
Nguyen Thi Anh Nguyet
Class - Batch:
IBC01 - K46
Major:
International Business
Lecturer:
MSc. Trinh Huynh Quang Canh
Ho Chi Minh City, December 2nd, 2022
ENDORSEMENT
This essay is developed and processed by me alone, not copied from any other
organizations and individuals' articles. If any cheating is detected, I will take full responsibility
for my score.
LECTURER’S NOTE
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TABLE OF CONTENTS
ENDORSEMENT
2
LECTURER’S NOTE
2
TABLE OF CONTENTS
3
MAIN CONTENT
4
PART 1: TRANSPORTATION PROBLEM
4
1. VINAMILK SCENARIO
4
2. SOLVE THE PROBLEM
6
PART 2: INVENTORY PROBLEM
8
1. CO.OPMART SCENARIO
8
2. BASIC EOQ MODEL FOR 2ND SCENARIO
10
3. SOLVE THE PROBLEM
10
4. INVENTORY ANOMALY
11
5. SOLVE THE ANOMALY PROBLEM
12
REFERENCES
14
MAIN CONTENT
PART 1: TRANSPORTATION PROBLEM
1. VINAMILK SCENARIO
Vinamilk is the leading company in Vietnam in the field of production and distribution
of dairy products. Along with the development of Vietnam's dairy industry, the Vinamilk brand
has a 46-year history of development with many brands accompanying the years such as 100%
fresh milk, Ong Tho condensed milk, Dielac baby formula... Consumers understanding and
market sensitivity are important factors that help Vinamilk create a diversified product
portfolio that satisfies all audiences from infants, children, adults, teenagers, women, the
elderly… and capture the shift in new consumption trends. Vinamilk is also the only billiondollar brand in the Top 25 leading F&B brands of Forbes Vietnam.
According to the financial report of the third quarter of 2022 announced by Vinamilk,
total revenue reached 16,094 billion VND, stable over the same period. Notably, revenue in
the third quarter of 2021 reached a peak, surpassing 16,000 billion VND for the first time in
the context of social isolation causing some other businesses to break their supply chains while
Vinamilk promoted its advantage nationwide and achieved positive business results.
With the investment and development of a dairy farm system throughout Vietnam,
Vinamilk has a self-sufficient milk natural resource of international standards. After collecting
natural milk at the farms, trucks deliver them to manufacturing plants for processing and
packaging the finished products. One of the company's main products is canned fresh milk.
Raw milk is squeezed from cows at 3 farms:
● Farm 1: At Yen Son, Tuyen Quang province
● Farm 2: At Yen Dinh, Thanh Hoa province
● Farm 3: At Thai Hoa, Nghe An province
They are then transported by trucks to 4 manufacturing plants:
● Plant 1: At Tien Son, Bac Ninh province
● Plant 2: At Lam Son, Thanh Hoa province
● Plant 3: At Cua Lo, Nghe An province
● Plant 4: At Huong Son, Ha Tinh province
For many years, the company has adopted a transportation strategy based on calculating
the distance a truck has to travel from farms to manufacturing plants. The current strategy is as
follows:
● Yen Son farm is located furthest from factories, so all milk from this farm will
be delivered to the nearest factory (Tien Son), with any surplus going to the
plant in Lam Son.
● The factory in Huong Son is located furthest from the farms, so the nearest farm
(Thai Hoa) will ship all the raw milk there, with any surplus going to the plant
in Cua Lo.
● The farm in Yen Dinh will supply the remaining needs of the manufacturing
plants.
An estimate of the production from each farm has been made for the upcoming
producing batch, and each facility has been given a specific amount from the overall supply of
raw milk. This information is given in Table 1.1.
Farm
Output
Warehouse
Allocation
Yen Son
105
Tien Son
50
Yen Dinh
35
Lam Son
75
Thai Hoa
60
Cua Lo
30
Huong Son
45
Total
200
Total
200
Table 1.1. Estimated output from each farm and allocation for each manufacturing plant
Unit: Truckloads
Current shipping plan of Vinamilk is shown as Table 1.2 below.
From/To
Plant
Farm
Tien Son
Lam Son
Cua Lo
Huong Son
Yen Son
50
55
0
0
Yen Dinh
0
20
15
0
Thai Hoa
0
0
15
45
Table 1.2. Current shipping plan of Vinamilk from farms to manufacturing plants
Unit: Truckloads
The shipping cost per truckload is illustrated in Table 1.3.
From/To
Plant
Farm
Tien Son
Lam Son
Cua Lo
Huong Son
Yen Son
$186
$218
$355
$406
Yen Dinh
$267
$242
$337
$444
Thai Hoa
$508
$351
$204
$353
Table 1.3. Shipping cost from farms to manufacturing plants
From the information given above, the total shipping cost of Vinamilk is calculated:
Total shipping cost = 50*$186 + 55*$218 + 20*$242 + 15*$337 + 15*$204 + 45*$353
= $50,130
They are currently reevaluating the current shipping strategy to evaluate if VINAMILK
can create a new shipping strategy that would cut the overall delivery cost to an absolute
minimum.
2. SOLVE THE PROBLEM
● Variable: Xij = number of truckloads (i = 1,2,3 and j = 1,2,3,4)
● Objective:
Minimize Total Shipping Cost = 186X11 + 218X12 + 355X13 + 406X14 + 267X21 + 242X22 +
337X23 + 444X24 + 508X31 + 351X32 + 204X33 + 353X34
● Constraint:
○ Supply:
X11 + X12 + X13 + X14 = 105
X21 + X22 + X23 + X24 = 35
X31 + X32 + X33 + X34 = 60
○ Demand:
X11 + X21 + X31 = 50
X12 + X22 + X32 = 75
X13 + X23 + X33 = 30
X14 + X24+ X34 = 45
● Result (Excel SOLVER and QM Windows):
● Explanation:
○ From the farm at Yen Son (Tuyen Quang):
■ Deliver 50 truckloads to plant at Tien Son (Bac Ninh)
■ Deliver 40 truckloads to plant at Lam Son (Thanh Hoa)
■ Deliver 15 truckloads to plant at Huong Son (Ha Tinh)
○ From the farm at Yen Dinh (Thanh Hoa):
■ Ship all 35 truckloads to plant at Lam Son (Thanh Hoa)
○ From the farm at Thai Hoa (Nghe An):
■ Transport raw milk to 2 manufacturing plants Cua Lo (Nghe An) and
Huong Son (Ha Tinh), each factory received 30 truckloads.
=> TOTAL SHIPPING COST: $49,290 (MINIMUM)
PART 2: INVENTORY PROBLEM
1. CO.OPMART SCENARIO
Co.opmart is a Vietnamese supermarket brand under the Ho Chi Minh City Union of
Commercial Cooperatives (Saigon Co.op), operated according to the cooperative collective
economic model. In 2021, under the impact of the epidemic and the prolonged social
distancing, many businesses had to stop operating, resulting in a decrease in people's income,
thereby changing consumers' shopping behavior and consumption habits, following the trend
of tightening spending and giving priority only to essential products. Vietnam's retail industry
was also hit hard when it dropped to 3.8% over the same period, the lowest level since 2015,
in which Ho Chi Minh City alone. Ho Chi Minh City dropped to 21.9%. Under such difficult
conditions, by the end of 2021, Saigon Co.op only achieved sales of VND 30,671 billion, down
7.8% compared to 2020; Network development was also greatly affected by the epidemic, with
only nearly 40 new points of sale added, including Co.opmart, Co.op Food, Co.op Smile,
Cheers and Finelife.
Co.opmart is currently the enterprise with the most supermarkets in Vietnam, with more
than 128 supermarkets and hypermarkets. Due to that, Co.opmart must maintain an inventory
of each type of product. Co.opmart stores products in warehouses, from which goods are
transported continuously to its supermarkets, hypermarkets, etc. When the inventory level of a
certain specific product is low, the distribution department will place orders with the
manufacturing plants to replenish the inventory. The additional quantity will then be delivered
by truck to Co.opmart's warehouse after 10 working days from the order date.
An example of Co.opmart inventory problem product in this essay is Dielac baby
formula (Vinamilk). The regular monthly consumption of this baby formula is 650 cans of
milk per month. Therefore, Co.opmart's current inventory policy is to order 1,300 cans of
milk every two months. Orders are placed in time for delivery when inventory just runs out,
so inventory levels roughly follow the cog pattern over a year shown in the figure.
This model is a popular model for inventory levels. However, is Co.opmart's current
policy the optimal policy to save the most costs? Although reducing the amount of inventory
will increase the ordering cost and frequency, it will also decrease a large part of the inventory
cost. Therefore, Co.opmart needs to consider different costs to come up with the best costsaving policy.
First of all, the first cost that needs to be considered in this inventory problem is the
cost of purchasing. Vinamilk sets the price with Co.opmart at $12 a can of formula. Besides,
labor costs and overhead costs also need to be taken into account. The average labor cost for
Co.opmart warehouse staff is $17 per hour, and approximately 5 hours of labor are involved in
ordering, resulting in a total labor cost of $85. Overhead costs (supervision, office space, etc.)
are estimated to be $35. The sum of these two costs is $120.
When Co.opmart receives a shipment of cans of baby formula from Vinamilk, there are
a number of additional costs with holding these cans in inventory until they are sold. The most
important of these costs are the cost of capital tied up in inventory. Suppose that currently there
are 1,300 cans of Dielac baby formula in inventory. The purchase of these 1,300 cans
required an expenditure of 1,300 ($12 per can) = $15,600, and this money will not be
regained until the cans of baby formula are sold. If this capital of $15,600 were not tied up in
these cans of formula, Co.opmart would have other opportunities to use the money that would
earn an attractive return, and it is called opportunity cost of this capital.
The Co.opmart controller estimates that the cost of capital tied up is 20 percent per
annum. For instance, if the average number of Dielac formula cans during one year is 650, then
the cost of capital tied up in this inventory that year is 0.2 (650 cans) ($12 per can) = $1,560.
The other kinds of costs associated with holding Dielac baby formula cans in inventory
include:
● The cost of leasing the warehouse space for storing the formula cans.
● The cost of insurance against loss of inventory by fire, theft, vandalism, etc.
● The cost of personnel who oversee and protect the inventory.
● Taxes that are based on the value of inventory.
On an annual basis, the sum of these costs is estimated to be 8 percent of the average
value (based on Co.opmart’s purchase price) of the inventory being held.
Adding this 8 percent to the 20 percent for the cost of capital tied up in inventory gives
28 percent per year. Therefore, the total annual cost per can associated with holding formula
cans in inventory is: 0.28 ($12 per can) = $3.36 per can.
2. BASIC EOQ MODEL FOR 2ND SCENARIO
● Annual demand: 15,600 cans
● Setup cost: $120
● Unit holding cost: $3.36 per can
● Lead time: 10 days
● Working days per year: 360 days
3. SOLVE THE PROBLEM
● Analytical
Let:
Q = Optimal order quantity
ASC = Annual Setup Cost
D = Annual Demand = 15,600
AHC = Annual Holding Cost
K = Setup cost = $120
h = Unit holding cost = $3.36
Objective:
Minimize TVC = ASC + AHC
We have:
ASC = 𝐷 K
𝐷
AHC =
𝐷
h
2
Minimize Cost => ASC = AHC
𝐷
𝐷
=> 𝐷 K =
=> 𝐷2 =
2
h
2𝐷𝐷
ℎ
2𝐷𝐷
ℎ
=> Q = √
2∗120∗15,600
3.36
=√
= 1,055.60
Conclusion:
The optimal order quantity is 1,055.60 formula cans, with minimum total variable cost is
$3,546.81.
4. INVENTORY ANOMALY
The cost incurred when a shortfall develops is the final expense that could be incurred
as a result of Co.opmart's inventory policy. In reality, the shortage actually can happen due to
either a delay in Vinamilk’s delivery or larger-than-usual sales orders while the delivery is in
transit.
Among the significant effects are:
● Customer displeasure, which could lead to a loss of goodwill and some potential future
sales.
● The probable need for Co.opmart to reduce the price it charges for formula cans that
are delivered late to appease its customers and get them to accept the delay.
● Accepting late payments for tires that were delivered late, which caused revenue to be
delayed.
● The expenditures associated with the increased record-keeping and labor expenses
needed for out-of-stock cans.
The total cost as a result of these effects is roughly proportional to both the quantity
and duration of the shortage of formula cans. The shortage annual cost is $6.80 multiplied by
the average number of cans that are unavailable throughout the year.
5. SOLVE THE ANOMALY PROBLEM
● Analytical
Let:
Q* = Optimal order quantity
ASC = Annual Setup Cost
S = Optimal maximum shortage
AHC = Annual Holding Cost
D = Annual Demand = 15,600
AShC = Annual Shortage Cost
K = Setup cost = $120
h = Unit holding cost = $3.36
p = Unit shortage cost = $6.80
Objective:
Minimize TVC = ASC + AHC + AShC
We have:
ASC = 𝐷∗ K
𝐷
AHC = h
(𝐷∗−𝐷)2
2𝐷∗
𝐷2
AShC = p 2𝐷∗
2𝐷𝐷
ℎ
Minimize Cost => Q* = √
𝐷+ℎ
𝐷
√
= 1,290.30
ℎ
and S = (ℎ+𝐷) Q* = 426.71
Conclusion:
The optimal order quantity is 1,290.30 formula cans and optimal maximum shortage is
426.71 orders, with minimum total variable cost is $2,901.65.
REFERENCES
Báo Công Thương. (2022, April 29). Saigon Co.op sẽ chuyển đổi mạnh mẽ trong năm
2022 để giữ vững thị phần. Saigon Coop. Retrieved December 2, 2022, from
http://www.saigonco-op.com.vn/tintucsukien/saigon-coop-se-chuyen-doi-manh-metrong-nam-2022-de-giu-vung-thi-phan_6030.html
Development history. (n.d.). Vinamilk. Retrieved December 2, 2022, from
https://www.vinamilk.com.vn/en/development-history/
Hà Thu. (2022, October 31). Vinamilk: Doanh thu quý 3/2022 ổn định, dòng tiền từ
hoạt động kinh doanh cải thiện. VnEconomy. Retrieved December 2, 2022, from
https://vneconomy.vn/vinamilk-doanh-thu-quy-3-2022-on-dinh-dong-tien-tu-hoatdong-kinh-doanh-cai-thien.htm
Nguyen, M. (2022, May 4). Vietnam: leading supermarket chains by number of outlets
2022.
Statista.
Retrieved
December
2,
2022,
from
https://www.statista.com/statistics/1016562/vietnam-leading-hypermarketsupermarket-chains-by-outlet-number/
Subordinate
units.
(n.d.).
Vinamilk.
Retrieved
https://www.vinamilk.com.vn/en/subordinate-units
December
2,
2022,
from