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Promet – Traffic&Transportation, Vol. 24, 2012, No. 1, 35-43	 35
M. Maslarić, A. Groznik, N. Brnjac: Distribution Channel Reengineering: A Case Study
MARINKO MASLARIĆ, M.Sc.
E-mail: marinko@uns.ac.rs
University of Novi Sad, Faculty of Technical Sciences
Trg D. Obradovića 6, 21000 Novi Sad, Serbia
ALEŠ GROZNIK, Ph.D.
E-mail: ales.groznik@ef.uni-lj.si
University of Ljubljana, Faculty of Economics
Kardeljeva ploščad 17, SI-1000 Ljubljana, Slovenia
NIKOLINA BRNJAC, Ph.D.
E-mail: nikolina.brnjac@fpz.hr
University of Zagreb,
Faculty of Transport and Traffic Sciences
Vukelićeva 4, 10000 Zagreb, Croatia
Distribution Logistics
Preliminary Communication
Accepted: Nov. 23, 2010
Approved: Dec. 20, 2011
DISTRIBUTION CHANNEL REENGINEERING:
A CASE STUDY
ABSTRACT
For the last few decades there has been growing inter-
est in making more integrated business decisions across
larger segments of the logistic and distribution networks.
Modern information technology is allowing this idea to be
implemented, but there is need to develop a way of effective
use of information technologies that support this business
direction. In this paper a methodology to assist distribution
networks reengineering with the aim of integrating logistic
processes within the distribution supply chain has been pro-
moted. The emphasis of methodology is on the business pro-
cesses modelling and reengineering in the distribution net-
work. Finally, this paper presents an oil company case study
to illustrate how the methodology can be applied in practice.
KEYWORDS
distribution process, business process modelling, reengi-
neering, information sharing, logistics
1. INTRODUCTION
To succeed in the modern global economy, it is criti-
cal to build a logistic network that is information-rich,
highly flexible, cost effective, and defined by both cus-
tomer needs and internal corporate strategy. Organiza-
tions must constantly reinvent their logistic networks
to allow for growth and change. The nature of the dis-
tribution process is changing from simply holding phys-
ical inventory towards a business model that relies on
information and inventory linkages with customers
and suppliers. Customer expectations now include
both traditional activities associated with warehous-
ing and distribution and new activities like technical
support, electronic order processing, and customized
financial services, to name a few (more added value
activity). Structural changes in distribution channels
are currently taking place which are accelerating de-
liveries to customers. These new distribution channel
structures, in which logistics management is typically
centralized, have proven to be both extremely cost ef-
ficient and effective in improving customer services.
The value of centralized logistics activities within lo-
gistic channels has been analyzed in [1, 2, 3, 4]. Mod-
ern information technology (IT) has been a necessary
enabler of the move to more centralized distribution
structures [5]. High operational efficiency is depen-
dent on quick, accurate and continuous exchange of
information between organizations and also between
and within different functions within organizations.
Rapid developments in IT have increased the availabil-
ity of information and also the opportunities to transfer
information between different inter and intra-organiza-
tional units.
However, the simple use of IT applications to im-
prove information transfers between supply chain
members is not enough to realize the benefits of in-
formation sharing and centralized logistics manage-
ment. A mere increase in information transfers does
not mean that the efficiency of logistics processes will
be improving. The business models of existing distribu-
tion processes have to be changed so as to facilitate
better use of the information transferred [6]. The aim
of this article is to describe and explain the reengi-
neering of distribution processes from traditional dis-
tribution to distribution applying the logistic principles
and involving the centralization of logistics activity
in distribution networks through using the proposed
methodology. The core steps of the methodology are
based on the business processes modelling and simu-
M. Maslarić, A. Groznik, N. Brnjac: Distribution Channel Reengineering:A Case Study
36	 Promet – Traffic&Transportation, Vol. 24, 2012, No. 1, 35-43
lation. An explanatory methodology framework has
been developed and applied to a company case study.
The distribution network, observed in this case study,
represents a network of one distribution centre, mul-
tiple retailers and customers. The distribution centre’s
task is to deliver the goods to each retailer so that the
customer demands are met to the most desirable lev-
els possible. The proposed methodology assumed an
integrated logistic decision-making to assist the distri-
bution centres in performing their tasks.
The next section briefly reviews the basic principles
about the distribution channel reengineering. Section
3 introduces the term of business process modelling.
Section 4 defines the proposed methodology. Section
5 formulates the case study and outlines the business
process models for the current and proposed state for
the distribution network under consideration, and de-
tails a simulation study. Section 6 discusses the re-
sults and provides a conclusion.
2.	DISTRIBUTION CHANNEL
REENGINEERING
In reengineering theories, organizational hier-
archies and the representation of organizations in
terms of different functions are replaced by a pro-
cess-oriented perspective. Organizational structures
are redesigned by focusing on business processes
and their outcome. According to [7] three different
restructuring concepts can be distinguished: total
quality management (TQM), time-based management
(TBM) and business process reengineering (BPR),
and the most important contribution of these theo-
ries has been to extend a process orientation into a
strategy paradigm. The process-oriented design for
the logistic and distribution systems is based on ef-
ficient use of IT [8]. Information sharing between
members of a distribution supply chain using new IT
should be increased to reduce uncertainty and im-
prove the logistic performances [9]. However, com-
panies need to invest large amounts of money for
redesigning internal organizational and technical pro-
cesses, changing traditional and fundamental prod-
uct distribution channels and customer service pro-
cedure to achieve IT-enabled supply chain. The main
problem when developing an innovative IT-integrated
distribution system is lack of integration between IT
and business model [10, 11, 12]. Hence, the forma-
tion of a business model is crucial for full utilization
of improved information system. Information should
be readily available to all companies in the distribu-
tion channel, and the business processes should be
structured to allow full use of this information. The
objective of this paper is to offer insights into the dis-
tribution channel reengineering using business pro-
cess modelling and simulation.
3.	BUSINESS PROCESS MODELLING
Business process reengineering is enabled by
business process modelling. A business process
model is an abstraction of a business that shows
how business components are related to each other
and how they operate. Its ultimate purpose is to pro-
vide a clear picture of the company’s current state
and to determine its vision for the future. Modelling a
complex business requires the application of multiple
views. Each view is a simplified description (an ab-
straction) of a business from a particular perspective
or vantage point, covering particular concerns and
omitting entities not relevant to this perspective. To
describe a specific business view process mapping is
used. It consists of tools that enable us to document,
analyze, improve, streamline, and redesign the way
the company performs its work. The process mapping
provides a critical assessment of what really happens
inside a given company. The usual goal is to define
two process states: AS-IS and TO-BE. The AS-IS state
defines how a company’s work is currently being per-
formed. The TO-BE state defines the optimal perfor-
mance level of AS-IS. In other words, to streamline
the existing process and remove all rework, delays,
bottlenecks and assignable causes of variation, there
is a need to achieve the TO-BE state. Business pro-
cess modelling and the evaluation of different alter-
native scenarios (TO-BE models) for the improvement
by simulation are usually the driving factors of the
business renovation process [13]. In the next section
the proposed methodology for distribution channel
reengineering is presented.
4.	THE PROPOSED DISTRIBUTION CHANNEL
REENGINEERING METHODOLOGY
The methodology presented in this section is the
outcome of an iterative process from theory, practice,
and case studies. There have been a number of pa-
pers published describing reengineering methodolo-
gies [14, 15, 16, 17, 18]. Most focus on major phases
of redesign, others go into exquisite detail. Review
of those methodologies shows significant lack of re-
search on methodology of logistic distribution chan-
nels renovation. Hence, the main motivation of this
research was to define a new methodology frame that
would allow academia and practitioners to restructure
the existing distribution channels from traditional dis-
tribution to distribution applying the logistic principles
and involving the centralization of logistics activity in
distribution networks. So the main advantage of the
proposed methodology is its suitability for applying
reengineering of different kinds of logistic distribution
channels in order to increase the successful rate of
the reengineering project.
Promet – Traffic&Transportation, Vol. 24, 2012, No. 1, 35-43	 37
M. Maslarić, A. Groznik, N. Brnjac: Distribution Channel Reengineering:A Case Study
The proposed methodology is a generic six-step
approach that guides the actions to assist business
process reengineering in logistic distribution networks.
It is a guide, not a procedure or manual. The structure
for the methodology is shown in Figure 1. An outline
of the content of the proposed methodology is given
below.
called the base case. The objective of this stage is
identifying and modelling the strategic (value-added)
processes that are feasible to change. The base case
will be used as a standard against which the potential
future-state operating scenarios will be compared.
Redesign process - analyzing and evaluating po-
tential future-state scenarios. Once the AS-IS model is
established, it is time to build TO-BE models as poten-
tial scenarios of future conditions and compare them
with the current reality. To do this it is important to first
establish and prioritize which variables will present the
key factors in the analysis. These variables could be
inventory costs, transportation costs, required service
levels, ordering costs, labour availability, etc. The mod-
el of the new redesigned process has to contribute to
simplification, minimization and automation of steps,
and efficiency optimization through using new informa-
tion technology.
Selecting the optimal future-state. After all it is time
to assess the various future-state scenarios that are
developed by manipulating the data that established
the base case. For that purpose simulation was used.
After creation of the simulation model of the business
process, these options were compared and the model
that best supports the organization’s strategic plans
related with the distribution process was chosen.
Reviewing new process. After selecting the optimal
future process model, it is necessary to develop the
strategic view of the new business process, set the
process targets and performances, and to develop a
plan to meet the targets. This implies the process team
training in order to efficiently manage and operate the
new process, and the introduction of the redesigned
process into the business organizational structure.
5.	DISTRIBUTION CHANNEL
REENGINEERING: A CASE STUDY
The case study is a Serbian petrol distribution com-
pany. Its sales and distribution cover the full range of
petroleum products for the domestic market. The dis-
tribution channel comprises the distribution centre,
petrol stations and final customers. The products are
distributed using tank tracks. In line with the aim of
the paper only a fragment, namely the procurement
and distribution process, will be shown in the next sec-
tion. A broader description of the case study can be
found in [19].
From the distribution point of view, the oil industry
is a specific business, and for many reason it is still
generally based on the traditional model. The prod-
uct is manufactured, marketed, sold and distributed
to customers. In other industries, advanced logistic
and distribution operations are becoming increasingly
driven by demand-pull requirements from the cus-
tomer. There is strong vertically integrated nature of
Goal of Methodology:
to assist in distribution
channel reengineering
Step 1
Step2
Step3
Step 4
Step5
Step6
Uderstan-
ding business
needs, goals
and objectives
Collecting
relevantdata
andunder-
standingbusiness
processEstablishing
basecase
(modeling
AS-ISstate)
Redesign
process
(TO-BE
models)
Selecting
optimal
future
stateReviewprocess
Figure 1 - The proposed methodology
for distribution channel reengineering
Understanding business needs, goals and objec-
tives: The first step on the road to a reengineering
distribution system is to assemble a team of strate-
gic decision makers and influences from a variety of
corporate levels. Not only is it important to fostering a
universal sense of ownership in the process by these
key personnel, but these people will also source the
needed data on the past and current operations, as
well as about future corporate plans. Outputs of this
initiation stage are: assigning project teams, setting
business performance goals and clear understanding
and well defining project scope.
Collecting relevant data and understanding the
business process. Once the goals of the distribution
channel reengineering process have been defined, it
should be fairly clear what types of data need to be col-
lected for the analysis. Also, the business process ar-
chitecture has to be identified. Through this diagnosis
stage responsibilities and roles for each process will
be assigned. After that it could be possible to make a
selection of the strategic (added-value) processes for
redesign.
Establishing the base case. Now that all the data
have been collected and the process has been de-
fined, it is time to use that information to create an AS-
IS model of current distribution channel operations,
M. Maslarić, A. Groznik, N. Brnjac: Distribution Channel Reengineering:A Case Study
38	 Promet – Traffic&Transportation, Vol. 24, 2012, No. 1, 35-43
oil companies and that may be a potential advantage.
In other industries, much attention is focused on value
chain integration across multiple manufacturers, sup-
pliers and customers. In the oil industry, more links in
the logistic chain are “in house”, suggesting simpler
integration. In practice, there is still a long way to go to
achieve full integration of logistic processes in the oil
distribution chain.
A case study has been used as a research method
to underline the theoretical findings set out in previ-
ous sections, i.e. to show how the distribution chan-
nel reengineering can be adopted with business pro-
cess modelling. In addition, the purpose of the case
study is to show how the benefits of the distribution
channel reengineering can be assessed by using the
proposed combination of business process modelling
and simulation. The presented research is only partly
of an exploratory nature in researching the possibility
of assessing distribution channel renovation and inte-
gration benefits.
The business process modelling and renovation
project was initiated by the Serbian petrol company
in order to reduce the operating costs, shorten lead
times and improve inventory management. The project
started with the formation of a project group consisting
of members of the petrol company and consultants.
The first step of the project was a workshop for the
project group in which the members were acquainted
with the reengineering goals and methodology. After
the workshop, the key business process groups were
identified by a discussion and brainstorming. One of
the most crucial processes was the procurement pro-
cess (Step 1 in Figure 1).
Appropriate database was established based on
the company official data and by interviewing people
from the company that perform the viewed activities.
Apart from business process data, the industry-specif-
ic data were used (e.g. oil prices, tank volumes) which
were available from literature [4]. According to the col-
lected data, organizational model, developed process
objectives, identified business process architecture
the model of the current distribution process could be
developed (Step 2 in Figure 1).
The objective of Step 3 (Figure 1) was to map out
in a structured way the distribution processes of the
observed petrol company. The description of the pro-
curement and distribution processes are as follows:
the stock level is measured manually once a day. The
results are faxed to the sales and purchasing depart-
ments, which collects information from all petrol sta-
tions. The purchasing department predicts future de-
mand and takes additional consultation with petrol
station managers. Tacit employee knowledge is used
to make and optimize orders and transport routes. The
analytical sector controls possible changes in demand
and supply patterns and transport routes. If necessary,
it can adjust or cancel orders. After that, the orders are
sent to the transport department. The orders are ful-
filled with the available fleet. The modelling tool used
in this case study was iGrafx Process. The AS-IS model
was initially designed so that the personnel involved in
the distribution processes could review them, and after
that the final model shown in Figure 2 was developed.
The core objective of distribution chains is to deliv-
er the right product at the right time, at the right price
and safely. In a highly competitive market, each aims
to carry this out more effectively, more efficiently and
more profitably than the competitors do. Because both
the prices and the quality of petrol in Europe are regu-
lated, the main quality indicator in petrol distribution
is the number of stock-outs. The main cost drivers are
therefore: the number of stock-outs, stock level at the
petrol station and process execution costs. Lead time
is defined as the time between the start (measure-
ment of the stock level) and the end (either the arrival
at a petrol station or the decision not to place an order)
of the process.
The main problems identified when analyzing the
AS-IS model relate to the company’s performance ac-
cording to local optimization instead of global optimi-
zation. The silo mentality is identified as prime con-
straint in the observed case study. Other problems are
in inefficient and costly information transfer mainly
due to the application of poor IT. There is no optimiza-
tion of the performance of the distribution chain as a
whole. Purchasing, transport and shipping are all run
by people managing local, individual operations. They
have targets, incentives and local operational pres-
sures. Everything was being done at the level of the
functional silo despite the definition that local optimi-
zation leads to global deterioration. Based on the men-
tioned problems, some improvements were proposed.
The main changes lay in the improved integration of
whole parts of the distribution channel and centralized
distribution process management.
The emphasis in business process reengineering
is placed on changing how information transfers are
achieved. A necessary, but by no means sufficient con-
dition for this is to implement new IT which enables
efficient and cheap information transfers. Hence, IT
support is not sufficient as deep structural and organi-
zational changes are needed to fully realize the poten-
tial benefits of applying new IT. In this case a study of
two different propositions for business process reen-
gineering (two TO-BE models) was developed to show
how the implementation of new IT without business
process renovation and the related organizational
changes does not mean full optimization of distribu-
tion network performances (two TO-BE models were
built as potential scenarios of future conditions in
comparison with the current reality). The first renewed
business model (TO-BE 1) is shown in Figure 3 and
represents the case of implementing IT without struc-
tural changes to distribution processes. In the TO-BE 1
Promet – Traffic&Transportation, Vol. 24, 2012, No. 1, 35-43	 39
M. Maslarić, A. Groznik, N. Brnjac: Distribution Channel Reengineering:A Case Study
model, there is no integrated and coordinated activity
through the distribution channel. Inventory manage-
ment at the petrol stations and distribution centre is
still not coordinated.
The TO-BE 2 model assumes that the processes
in the whole distribution channel are fully integrated
and the distribution centre takes responsibility for the
whole procurement process. The TO-BE 2 business
model is shown in Figure 4. The main idea is that a
new organizational unit within the distribution centre
takes on a strategic role in coordinating inventory man-
agement and in providing a sufficient inventory level at
the petrol stations and distribution centre to fulfil the
demand of the end customer. It takes all the important
decisions regarding orders in order to realize this goal.
Other changes proposed in the TO-BE 2 model are the
Gas
Station
Sales
Department
Purchasing
Department
Distribution
Center
Transportation
Department
SectorforsupplygasstationAnalyticSectorAnalyticSector Start
Measurment
of gas level
Sending the results to
Sales Department
Sending the results
to Purchasing
Department
Consultation
with gas station
Unload and
control
End 2
Acceptance of
results from
different gas
station
Acceptance of
results from Sales
Department
Specification of
inventory level
Prediction of
future needs
Consultation
needed?
End 1
Need for supply?
Yes
Yes
Yes
No
No
No
Creation of
purchase
order
Sending orders
Acceptance
and analysis
of orders
Inventory
control at
Distribution
centre
Sending
purchasing
orders to DC
and
Transportation
Creation of the
correct orders
Acceptance of
orders
Consultation with
transport
department?
Routing and
scheduling
Sending the
plan for
delivering
Preparation for loading
Preparation for delivery
Loading and
control
Transport of
fuel to gas
station
Acceptance of
scheduling and
routing list
Acceptance
of orders
Consultation
Figure 2 - AS-IS model of the process
M. Maslarić, A. Groznik, N. Brnjac: Distribution Channel Reengineering:A Case Study
40	 Promet – Traffic&Transportation, Vol. 24, 2012, No. 1, 35-43
automatic measurement of petrol levels at petrol sta-
tions and the automatic transfer of such data to the
central unit responsible for petrol replenishment; the
predicting of the future demand by using progressive
tools; and using operations research methods to opti-
mize the transportation paths and times. The role of IT
in all of these suggestions is crucial.
In the next step (Step 5 in Figure 1) we compared
the current state and the proposed options and chose
the best model of the distribution process. For this we
use simulation. We simulated the business process
to investigate the impact of business process reen-
gineering on the defined distribution performances:
lead times and transactional costs. This simulation
is important as they enable us to estimate the conse-
quence of possible experiments. For estimating chang-
es in the process execution costs and lead times, a
three-month simulation of the AS-IS and of both the
TO-BE models was run. In the AS-IS model a new trans-
action is generated daily (the level of petrol is checked
once a day); in the TO-BE model it is generated on an
hourly basis (the level of stock is checked automatical-
ly every hour). The convincing results are summarized
in Table 1. The label “Yes” refers to those transactions
that lead to the order and delivery of petrol, while the
label “No” means a transaction where an order was
not made since the petrol level was sufficient.
The comparison of simulation results (Table 1)
shows that the proposed changes (TO-BE 1 and TO-BE
2) significantly lower the transactional costs as well as
the average lead times. There is also significant dis-
tinction between the proposed TO-BE 1 and TO-BE 2
models with regard to transactional costs and average
lead times. This means that in order to foster business
value out of IT implementation, the company has to
apply the distribution channel reengineering with busi-
ness process modelling. The comparison of AS-IS and
TO-BE 2 model shows the average process costs are
reduced by almost 50%, while the average lead times
are cut by 62% in the case of the TO-BE 2 business
PurchasingDepartment
Transportation
Department
Distribution
Centre
GasStation
SectorforsupplygasstationAnalyticSectorAnalyticSector Start End 1
Creation of order
Identification of the
need for supply
(automatic)
Aggregation of
purchasing
orders
(automatic)
Order
needed?
No
No
Yes
Yes
Sending the
orders to
Analytic Sector
Acceptance
and analysis
of orders
Inventory
control at
Distribution
centre
Creation of
the correct
orders
Sending
purchasing
orders to
DC and
Transportation
Consultation
with transport
department?
Acceptance
of orders
Acceptance
of orders
Routing and
scheduling
Sending the
plan for
delivering
Preparation for loading
Consultation
Acceptance of
scheduling and
routing list
Loading and
control
Transport of
the fuel to
gas station
Unload and
control
End 2
Preparation for delivery
Figure 3 - TO-BE 1 model of the process
Promet – Traffic&Transportation, Vol. 24, 2012, No. 1, 35-43	 41
M. Maslarić, A. Groznik, N. Brnjac: Distribution Channel Reengineering:A Case Study
model. From this it is clear that this renovation project
is justifiable from the cost and time perspectives. Fur-
thermore, through case study it was clarified that the
companies in reengineering their distribution channel
have to adopt systematic approach in order to stream-
line their processes. The case study results show that
full improvement in logistic performances is only pos-
sible in case of implementing both IT which enables
efficient information sharing and the redesign of the
business processes. The significance of this paper is
that it not only clarifies that mere IT implementation
will not result in an expected business change, but
also provides methodology that systematically assists
in distribution channel reengineering.
Changes described in the TO-BE 2 model have later
been adopted by the petrol company. The validity of
the model was tested by ex-post comparison of simu-
lated and real business operations data. The compari-
son validated the TO-BE 2 model since the data from
operations fit simulations. The validation also supports
the methodology of distribution channel reengineering
(Step 6 in Figure 1).
6.	CONCLUSION
The paper presents a methodology for the distribu-
tion network reengineering. The goal was to overcome
numerous reengineering methodologies that focus ei-
ther on major phases of redesign or are too detailed.
The presented methodology represents a comprehen-
sive tool for both academia and practitioners to apply it
to the distribution channel reengineering in order to in-
crease the successful rate of the reengineering project.
PurchasingDepartment
CentralUnitfor
supplygasstation
AnalyticSector
Distribution
center
Transportation
DepartmentGasStation
Start
Identification of
the need for
supply
(automatic)
Aggregation of
purchasing
orders
(automatic)
End 1
No
YesOrder
needed?
Creation
of order
Sending the orders to DC
Sending the orders to Analytic Sector
Acceptance
of orders
Acceptance
of orders
No
Yes
Consultation
with transport
department?
Transport
optimisation
Preparation
for loading
Sending the list
for delivery
Loading and
control
Acceptance the
list for delivery
Preparation
for transport
End 2
Unload and
control
Transport the
fuel to gas
station
Consultation
Figure 4 - TO-BE 2 model of the process
Table 1 - Comparison of simulation results for the AS-IS and TO-BE models
Transaction No. Av. lead-time (hrs) Av. work (hrs) Av. wait (hrs)
Average
costs (€)
Yes (AS-IS) 46 33.60 11.67 21.93 60.10
No (AS-IS) 17 8.43 2.40 6.03 8.47
Yes (TO-BE 1) 46 27.22 10.26 16.96 56.74
No (TO-BE 1) 1,489 0.00 0.00 0.00 0.00
Yes (TO-BE 2) 46 12.85 4.88 7.98 32.54
No (TO-BE 2) 1,489 0.00 0.00 0.00 0.00
M. Maslarić, A. Groznik, N. Brnjac: Distribution Channel Reengineering:A Case Study
42	 Promet – Traffic&Transportation, Vol. 24, 2012, No. 1, 35-43
The methodology has been tested on a petrol dis-
tribution company in order to explore the effect of
information sharing with regard to the performance.
The business process reengineering in the distribu-
tion channel, realized through the proposed methodol-
ogy, described in this paper helped achieve significant
savings for the case study company by improving the
effectiveness in the distribution network. The conclu-
sions of the simulation experiments are significant
savings in the cost and time measures. The presented
case study shows the applicability of the proposed
methodology; however, further case studies have to be
done in the future to prove the validity.
This research has also exposed a series of issues
for the future work. First, the proposed methodology,
which is process-based, needs to be further devel-
oped in the way of connecting with IT solutions for
the problems such as vehicle routing and fleet opti-
mization. Second, a framework for security and risk
management aspects also needs to be created. Only
in that way the proposed methodology for distribution
channel reengineering can be incorporated into a
broader change management perspective. Currently,
the proposed methodology focuses on the costs and
lead times, and it should be definitely extended into
the stock level, resource optimization and risk man-
agement.
Mr MARINKO MASLARIĆ
E-mail: marinko@uns.ns.ac.yu
Univerzitet u Novom Sadu, Fakultet tehničkih nauka
Trg D. Obradovića 6, 21000 Novi Sad, Srbija
Dr ALEŠ GROZNIK
E-mail: ales.groznik@ef.uni-lj.si
Univerza v Ljubljani, Ekonomska fakulteta
Kardeljeva ploščad 17, SI-1000 Ljubljana, Slovenija
Dr NIKOLINA BRNJAC
E-mail: nikolina.brnjac@fpz.hr
Sveučilište u Zagrebu, Fakultet prometnih znanosti
Vukelićeva 4, 10000 Zagreb, Hrvatska
SAŽETAK
PRISTUP REINŽENJERINGU KANALA
DISTRIBUCIJE: STUDIJA SLUČAJA
Poslednjih decenija prisutan je rastući interes za inte-
grirano poslovno odlučivanje između velikog broja članova
logističkih distributivnih mreža. Savremene informacione
tehnologije omogućavaju implementaciju ovih ideja,
međutim, javlja se potreba definisanja što efikasnijeg načina
iskorišćenja prednosti koje pružaju informacione tehnologije
kao podrška poslovnom odlučivanju. Shodno tome, u ovom
radu promovisana je metodologija reinženjeringa logističkih
distributivnih mreža, sa ciljem integriranja logističkih pro-
cesa unutar distributivnih lanaca snabdevanja. Akcenat
razvijene metodologije je na modelovanju poslovnih proc-
esa i reinženjeringu distributivnih mreža. Konačno, u radu
je obrađena studija slučaja naftnog preduzeća u cilju ilus-
tracije načina primene date metodologije u praksi.
KLJUČNE REČI
proces distribucije, modeliranje poslovnih procesa, reinže­
njering, razmena informacija, logistika
LITERATURE
[1]	 Chen, F.: Echelon recorder points, installation reorder
points, and the value of centralized demand informa-
tion, Management Science, Vol. 44, No. 12, 1998, pp.
221-234
[2]	 Dejonckheere, J., Disney, S.M., Lambrecht, M.R., Towi-
ll, D.R.: The impact of information enrichment on the
Bullwhip effect in supply chains: a control theoretic ap-
proach, European Journal of Operations Research, Vol.
153, No. 3, 2004, pp. 727-750
[3]	 Ferguson, M., Ketzenberg, M.E.: Information sharing to
improve retail product freshness of perishables, Pro-
duction and Operations Management, Vol. 15, No. 1,
2006, pp. 57-73
[4]	 Trkman, P., Stemberger, M.I., Jaklic, J., and Groznik,
A.: Process approach to supply chain integration, Sup-
ply Chain Management: An International Journal, Vol.
12, No. 2, 2007, pp. 116-128
[5]	 Vaculik, J., Michalek I., Kolarovszki P.: Principles of se-
lection, implementation and utilization of RFID in sup-
ply chain management, Promet-Traffic&Transportation-
Scientific Journal on Traffic and Transportation
Research, Vol. 21, 2009, pp. 41-48
[6]	 Trkman, P.: The critical success factors of business
process management, Int. j. inf. management. [Print
ed.], Vol. 30, No. 2, 2010, pp. 125-134
[7]	 Persson, G.: Logistics process redesign: Some useful
insights, Int. Journal of Logistics Management, Vol. 6,
1995, pp. 13-25
[8]	 Groznik, A., Trkman, P.: Business renovation towards
succesfull supply chain management in oil industry, E-
commerce 2006: Proceedings of the IADIS Internation-
al Conference, Porto, Portugal, December 9-11, 2006.
Porto: International Association for Development of the
Information Society, 2006, pp. 230-237
[9]	 Knez, M., Rosi B., Mulej M., Lipicnik M.: Competitive-
ness by Requisitely Holistic and Innovative Logistic
Management, Promet-Traffic&Transportation-Scientific
Journal on Traffic and Transportation Research, Vol.
22, 2010, pp. 229-237
[10]	 Andersen, P., H., Rask M.: Supply chain management:
new organisational practices for changing procure-
ment realities, Journal of Purchasing and Supply Man-
agement, Vol. 9, No. 2, March 2003, pp. 83-95
[11]	 Veselko, G., Jakomin I.: Coordinating Supply Chain
Management Strategy with Corporate Strategy, Prom-
et-Traffic&Transportation-Scientific Journal on Traffic
and Transportation Research, Vol. 20, 2008, pp. 119-
124
[12]	 Skerlavaj, M., Song, J., H, Lee, Y.: Organizational learn-
ing culture, innovative culture and innovations in South
Korean firms, Expert syst. appl.. [Print ed.], Vol. 37, No.
9, 2010, pp. 6390-6403
[13]	 Bosilj-Vuksic, V., Indihar-Stemberger, M., Jaklic, J., and
Kovacic, A.: Assessment of E-Business Transformation
Using Simulation Modelling, Simulation, Vol.78, No.
12, 2002, pp. 731-744
Promet – Traffic&Transportation, Vol. 24, 2012, No. 1, 35-43	 43
M. Maslarić, A. Groznik, N. Brnjac: Distribution Channel Reengineering:A Case Study
[14]	 Adesola, S. and Baines, T.: Developing and evaluat-
ing a methodology for business process improvement,
Business Process Management Journal, Vol. 11, No. 1,
2005, pp. 37-46
[15]	 Castano, S., Antonellis V. D., Melchiori, M.: A method-
ology and tool environment for process analysis and
reengineering, Data & Knowledge Engineering, Vol. 31,
No. 3, 1999, pp. 253-278
[16]	 Fuente, M. V., Ros, L., Ortiz, A.: Enterprise modelling
methodology for forward and reverse supply chain
flows integration, Computers in Industry, Vol. 61, No. 7,
2010, pp. 702-710
[17]	 Harmon, P., Davenport, T.: The BPTrends Process Re-
design Methodology, Business Process Change, 2007,
pp 353-383
[18]	 Stefanovic, D., Stefanovic, N., Radenkovic, B.: Supply
network modelling and simulation methodology, Simu-
lation Modelling Practice and Theory, Vol. 17, No. 4,
2009, pp. 743-766
[19]	 Maslaric, M.: Prilog istrazivanju uticaja karakteristika
informacionih tokova na planiranje i koordinaciju logi-
stickih procesa u lancima snabdevanja [An approach
to investigating the impact of information characteris-
tic on logistic processes planning and coordination in
supply chains]. Master Thesis, Faculty of Technical Sci-
ences, University of Novi Sad, Serbia, 2008

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Distribution channel reengineering_a_case_study

  • 1. Promet – Traffic&Transportation, Vol. 24, 2012, No. 1, 35-43 35 M. Maslarić, A. Groznik, N. Brnjac: Distribution Channel Reengineering: A Case Study MARINKO MASLARIĆ, M.Sc. E-mail: marinko@uns.ac.rs University of Novi Sad, Faculty of Technical Sciences Trg D. Obradovića 6, 21000 Novi Sad, Serbia ALEŠ GROZNIK, Ph.D. E-mail: ales.groznik@ef.uni-lj.si University of Ljubljana, Faculty of Economics Kardeljeva ploščad 17, SI-1000 Ljubljana, Slovenia NIKOLINA BRNJAC, Ph.D. E-mail: nikolina.brnjac@fpz.hr University of Zagreb, Faculty of Transport and Traffic Sciences Vukelićeva 4, 10000 Zagreb, Croatia Distribution Logistics Preliminary Communication Accepted: Nov. 23, 2010 Approved: Dec. 20, 2011 DISTRIBUTION CHANNEL REENGINEERING: A CASE STUDY ABSTRACT For the last few decades there has been growing inter- est in making more integrated business decisions across larger segments of the logistic and distribution networks. Modern information technology is allowing this idea to be implemented, but there is need to develop a way of effective use of information technologies that support this business direction. In this paper a methodology to assist distribution networks reengineering with the aim of integrating logistic processes within the distribution supply chain has been pro- moted. The emphasis of methodology is on the business pro- cesses modelling and reengineering in the distribution net- work. Finally, this paper presents an oil company case study to illustrate how the methodology can be applied in practice. KEYWORDS distribution process, business process modelling, reengi- neering, information sharing, logistics 1. INTRODUCTION To succeed in the modern global economy, it is criti- cal to build a logistic network that is information-rich, highly flexible, cost effective, and defined by both cus- tomer needs and internal corporate strategy. Organiza- tions must constantly reinvent their logistic networks to allow for growth and change. The nature of the dis- tribution process is changing from simply holding phys- ical inventory towards a business model that relies on information and inventory linkages with customers and suppliers. Customer expectations now include both traditional activities associated with warehous- ing and distribution and new activities like technical support, electronic order processing, and customized financial services, to name a few (more added value activity). Structural changes in distribution channels are currently taking place which are accelerating de- liveries to customers. These new distribution channel structures, in which logistics management is typically centralized, have proven to be both extremely cost ef- ficient and effective in improving customer services. The value of centralized logistics activities within lo- gistic channels has been analyzed in [1, 2, 3, 4]. Mod- ern information technology (IT) has been a necessary enabler of the move to more centralized distribution structures [5]. High operational efficiency is depen- dent on quick, accurate and continuous exchange of information between organizations and also between and within different functions within organizations. Rapid developments in IT have increased the availabil- ity of information and also the opportunities to transfer information between different inter and intra-organiza- tional units. However, the simple use of IT applications to im- prove information transfers between supply chain members is not enough to realize the benefits of in- formation sharing and centralized logistics manage- ment. A mere increase in information transfers does not mean that the efficiency of logistics processes will be improving. The business models of existing distribu- tion processes have to be changed so as to facilitate better use of the information transferred [6]. The aim of this article is to describe and explain the reengi- neering of distribution processes from traditional dis- tribution to distribution applying the logistic principles and involving the centralization of logistics activity in distribution networks through using the proposed methodology. The core steps of the methodology are based on the business processes modelling and simu-
  • 2. M. Maslarić, A. Groznik, N. Brnjac: Distribution Channel Reengineering:A Case Study 36 Promet – Traffic&Transportation, Vol. 24, 2012, No. 1, 35-43 lation. An explanatory methodology framework has been developed and applied to a company case study. The distribution network, observed in this case study, represents a network of one distribution centre, mul- tiple retailers and customers. The distribution centre’s task is to deliver the goods to each retailer so that the customer demands are met to the most desirable lev- els possible. The proposed methodology assumed an integrated logistic decision-making to assist the distri- bution centres in performing their tasks. The next section briefly reviews the basic principles about the distribution channel reengineering. Section 3 introduces the term of business process modelling. Section 4 defines the proposed methodology. Section 5 formulates the case study and outlines the business process models for the current and proposed state for the distribution network under consideration, and de- tails a simulation study. Section 6 discusses the re- sults and provides a conclusion. 2. DISTRIBUTION CHANNEL REENGINEERING In reengineering theories, organizational hier- archies and the representation of organizations in terms of different functions are replaced by a pro- cess-oriented perspective. Organizational structures are redesigned by focusing on business processes and their outcome. According to [7] three different restructuring concepts can be distinguished: total quality management (TQM), time-based management (TBM) and business process reengineering (BPR), and the most important contribution of these theo- ries has been to extend a process orientation into a strategy paradigm. The process-oriented design for the logistic and distribution systems is based on ef- ficient use of IT [8]. Information sharing between members of a distribution supply chain using new IT should be increased to reduce uncertainty and im- prove the logistic performances [9]. However, com- panies need to invest large amounts of money for redesigning internal organizational and technical pro- cesses, changing traditional and fundamental prod- uct distribution channels and customer service pro- cedure to achieve IT-enabled supply chain. The main problem when developing an innovative IT-integrated distribution system is lack of integration between IT and business model [10, 11, 12]. Hence, the forma- tion of a business model is crucial for full utilization of improved information system. Information should be readily available to all companies in the distribu- tion channel, and the business processes should be structured to allow full use of this information. The objective of this paper is to offer insights into the dis- tribution channel reengineering using business pro- cess modelling and simulation. 3. BUSINESS PROCESS MODELLING Business process reengineering is enabled by business process modelling. A business process model is an abstraction of a business that shows how business components are related to each other and how they operate. Its ultimate purpose is to pro- vide a clear picture of the company’s current state and to determine its vision for the future. Modelling a complex business requires the application of multiple views. Each view is a simplified description (an ab- straction) of a business from a particular perspective or vantage point, covering particular concerns and omitting entities not relevant to this perspective. To describe a specific business view process mapping is used. It consists of tools that enable us to document, analyze, improve, streamline, and redesign the way the company performs its work. The process mapping provides a critical assessment of what really happens inside a given company. The usual goal is to define two process states: AS-IS and TO-BE. The AS-IS state defines how a company’s work is currently being per- formed. The TO-BE state defines the optimal perfor- mance level of AS-IS. In other words, to streamline the existing process and remove all rework, delays, bottlenecks and assignable causes of variation, there is a need to achieve the TO-BE state. Business pro- cess modelling and the evaluation of different alter- native scenarios (TO-BE models) for the improvement by simulation are usually the driving factors of the business renovation process [13]. In the next section the proposed methodology for distribution channel reengineering is presented. 4. THE PROPOSED DISTRIBUTION CHANNEL REENGINEERING METHODOLOGY The methodology presented in this section is the outcome of an iterative process from theory, practice, and case studies. There have been a number of pa- pers published describing reengineering methodolo- gies [14, 15, 16, 17, 18]. Most focus on major phases of redesign, others go into exquisite detail. Review of those methodologies shows significant lack of re- search on methodology of logistic distribution chan- nels renovation. Hence, the main motivation of this research was to define a new methodology frame that would allow academia and practitioners to restructure the existing distribution channels from traditional dis- tribution to distribution applying the logistic principles and involving the centralization of logistics activity in distribution networks. So the main advantage of the proposed methodology is its suitability for applying reengineering of different kinds of logistic distribution channels in order to increase the successful rate of the reengineering project.
  • 3. Promet – Traffic&Transportation, Vol. 24, 2012, No. 1, 35-43 37 M. Maslarić, A. Groznik, N. Brnjac: Distribution Channel Reengineering:A Case Study The proposed methodology is a generic six-step approach that guides the actions to assist business process reengineering in logistic distribution networks. It is a guide, not a procedure or manual. The structure for the methodology is shown in Figure 1. An outline of the content of the proposed methodology is given below. called the base case. The objective of this stage is identifying and modelling the strategic (value-added) processes that are feasible to change. The base case will be used as a standard against which the potential future-state operating scenarios will be compared. Redesign process - analyzing and evaluating po- tential future-state scenarios. Once the AS-IS model is established, it is time to build TO-BE models as poten- tial scenarios of future conditions and compare them with the current reality. To do this it is important to first establish and prioritize which variables will present the key factors in the analysis. These variables could be inventory costs, transportation costs, required service levels, ordering costs, labour availability, etc. The mod- el of the new redesigned process has to contribute to simplification, minimization and automation of steps, and efficiency optimization through using new informa- tion technology. Selecting the optimal future-state. After all it is time to assess the various future-state scenarios that are developed by manipulating the data that established the base case. For that purpose simulation was used. After creation of the simulation model of the business process, these options were compared and the model that best supports the organization’s strategic plans related with the distribution process was chosen. Reviewing new process. After selecting the optimal future process model, it is necessary to develop the strategic view of the new business process, set the process targets and performances, and to develop a plan to meet the targets. This implies the process team training in order to efficiently manage and operate the new process, and the introduction of the redesigned process into the business organizational structure. 5. DISTRIBUTION CHANNEL REENGINEERING: A CASE STUDY The case study is a Serbian petrol distribution com- pany. Its sales and distribution cover the full range of petroleum products for the domestic market. The dis- tribution channel comprises the distribution centre, petrol stations and final customers. The products are distributed using tank tracks. In line with the aim of the paper only a fragment, namely the procurement and distribution process, will be shown in the next sec- tion. A broader description of the case study can be found in [19]. From the distribution point of view, the oil industry is a specific business, and for many reason it is still generally based on the traditional model. The prod- uct is manufactured, marketed, sold and distributed to customers. In other industries, advanced logistic and distribution operations are becoming increasingly driven by demand-pull requirements from the cus- tomer. There is strong vertically integrated nature of Goal of Methodology: to assist in distribution channel reengineering Step 1 Step2 Step3 Step 4 Step5 Step6 Uderstan- ding business needs, goals and objectives Collecting relevantdata andunder- standingbusiness processEstablishing basecase (modeling AS-ISstate) Redesign process (TO-BE models) Selecting optimal future stateReviewprocess Figure 1 - The proposed methodology for distribution channel reengineering Understanding business needs, goals and objec- tives: The first step on the road to a reengineering distribution system is to assemble a team of strate- gic decision makers and influences from a variety of corporate levels. Not only is it important to fostering a universal sense of ownership in the process by these key personnel, but these people will also source the needed data on the past and current operations, as well as about future corporate plans. Outputs of this initiation stage are: assigning project teams, setting business performance goals and clear understanding and well defining project scope. Collecting relevant data and understanding the business process. Once the goals of the distribution channel reengineering process have been defined, it should be fairly clear what types of data need to be col- lected for the analysis. Also, the business process ar- chitecture has to be identified. Through this diagnosis stage responsibilities and roles for each process will be assigned. After that it could be possible to make a selection of the strategic (added-value) processes for redesign. Establishing the base case. Now that all the data have been collected and the process has been de- fined, it is time to use that information to create an AS- IS model of current distribution channel operations,
  • 4. M. Maslarić, A. Groznik, N. Brnjac: Distribution Channel Reengineering:A Case Study 38 Promet – Traffic&Transportation, Vol. 24, 2012, No. 1, 35-43 oil companies and that may be a potential advantage. In other industries, much attention is focused on value chain integration across multiple manufacturers, sup- pliers and customers. In the oil industry, more links in the logistic chain are “in house”, suggesting simpler integration. In practice, there is still a long way to go to achieve full integration of logistic processes in the oil distribution chain. A case study has been used as a research method to underline the theoretical findings set out in previ- ous sections, i.e. to show how the distribution chan- nel reengineering can be adopted with business pro- cess modelling. In addition, the purpose of the case study is to show how the benefits of the distribution channel reengineering can be assessed by using the proposed combination of business process modelling and simulation. The presented research is only partly of an exploratory nature in researching the possibility of assessing distribution channel renovation and inte- gration benefits. The business process modelling and renovation project was initiated by the Serbian petrol company in order to reduce the operating costs, shorten lead times and improve inventory management. The project started with the formation of a project group consisting of members of the petrol company and consultants. The first step of the project was a workshop for the project group in which the members were acquainted with the reengineering goals and methodology. After the workshop, the key business process groups were identified by a discussion and brainstorming. One of the most crucial processes was the procurement pro- cess (Step 1 in Figure 1). Appropriate database was established based on the company official data and by interviewing people from the company that perform the viewed activities. Apart from business process data, the industry-specif- ic data were used (e.g. oil prices, tank volumes) which were available from literature [4]. According to the col- lected data, organizational model, developed process objectives, identified business process architecture the model of the current distribution process could be developed (Step 2 in Figure 1). The objective of Step 3 (Figure 1) was to map out in a structured way the distribution processes of the observed petrol company. The description of the pro- curement and distribution processes are as follows: the stock level is measured manually once a day. The results are faxed to the sales and purchasing depart- ments, which collects information from all petrol sta- tions. The purchasing department predicts future de- mand and takes additional consultation with petrol station managers. Tacit employee knowledge is used to make and optimize orders and transport routes. The analytical sector controls possible changes in demand and supply patterns and transport routes. If necessary, it can adjust or cancel orders. After that, the orders are sent to the transport department. The orders are ful- filled with the available fleet. The modelling tool used in this case study was iGrafx Process. The AS-IS model was initially designed so that the personnel involved in the distribution processes could review them, and after that the final model shown in Figure 2 was developed. The core objective of distribution chains is to deliv- er the right product at the right time, at the right price and safely. In a highly competitive market, each aims to carry this out more effectively, more efficiently and more profitably than the competitors do. Because both the prices and the quality of petrol in Europe are regu- lated, the main quality indicator in petrol distribution is the number of stock-outs. The main cost drivers are therefore: the number of stock-outs, stock level at the petrol station and process execution costs. Lead time is defined as the time between the start (measure- ment of the stock level) and the end (either the arrival at a petrol station or the decision not to place an order) of the process. The main problems identified when analyzing the AS-IS model relate to the company’s performance ac- cording to local optimization instead of global optimi- zation. The silo mentality is identified as prime con- straint in the observed case study. Other problems are in inefficient and costly information transfer mainly due to the application of poor IT. There is no optimiza- tion of the performance of the distribution chain as a whole. Purchasing, transport and shipping are all run by people managing local, individual operations. They have targets, incentives and local operational pres- sures. Everything was being done at the level of the functional silo despite the definition that local optimi- zation leads to global deterioration. Based on the men- tioned problems, some improvements were proposed. The main changes lay in the improved integration of whole parts of the distribution channel and centralized distribution process management. The emphasis in business process reengineering is placed on changing how information transfers are achieved. A necessary, but by no means sufficient con- dition for this is to implement new IT which enables efficient and cheap information transfers. Hence, IT support is not sufficient as deep structural and organi- zational changes are needed to fully realize the poten- tial benefits of applying new IT. In this case a study of two different propositions for business process reen- gineering (two TO-BE models) was developed to show how the implementation of new IT without business process renovation and the related organizational changes does not mean full optimization of distribu- tion network performances (two TO-BE models were built as potential scenarios of future conditions in comparison with the current reality). The first renewed business model (TO-BE 1) is shown in Figure 3 and represents the case of implementing IT without struc- tural changes to distribution processes. In the TO-BE 1
  • 5. Promet – Traffic&Transportation, Vol. 24, 2012, No. 1, 35-43 39 M. Maslarić, A. Groznik, N. Brnjac: Distribution Channel Reengineering:A Case Study model, there is no integrated and coordinated activity through the distribution channel. Inventory manage- ment at the petrol stations and distribution centre is still not coordinated. The TO-BE 2 model assumes that the processes in the whole distribution channel are fully integrated and the distribution centre takes responsibility for the whole procurement process. The TO-BE 2 business model is shown in Figure 4. The main idea is that a new organizational unit within the distribution centre takes on a strategic role in coordinating inventory man- agement and in providing a sufficient inventory level at the petrol stations and distribution centre to fulfil the demand of the end customer. It takes all the important decisions regarding orders in order to realize this goal. Other changes proposed in the TO-BE 2 model are the Gas Station Sales Department Purchasing Department Distribution Center Transportation Department SectorforsupplygasstationAnalyticSectorAnalyticSector Start Measurment of gas level Sending the results to Sales Department Sending the results to Purchasing Department Consultation with gas station Unload and control End 2 Acceptance of results from different gas station Acceptance of results from Sales Department Specification of inventory level Prediction of future needs Consultation needed? End 1 Need for supply? Yes Yes Yes No No No Creation of purchase order Sending orders Acceptance and analysis of orders Inventory control at Distribution centre Sending purchasing orders to DC and Transportation Creation of the correct orders Acceptance of orders Consultation with transport department? Routing and scheduling Sending the plan for delivering Preparation for loading Preparation for delivery Loading and control Transport of fuel to gas station Acceptance of scheduling and routing list Acceptance of orders Consultation Figure 2 - AS-IS model of the process
  • 6. M. Maslarić, A. Groznik, N. Brnjac: Distribution Channel Reengineering:A Case Study 40 Promet – Traffic&Transportation, Vol. 24, 2012, No. 1, 35-43 automatic measurement of petrol levels at petrol sta- tions and the automatic transfer of such data to the central unit responsible for petrol replenishment; the predicting of the future demand by using progressive tools; and using operations research methods to opti- mize the transportation paths and times. The role of IT in all of these suggestions is crucial. In the next step (Step 5 in Figure 1) we compared the current state and the proposed options and chose the best model of the distribution process. For this we use simulation. We simulated the business process to investigate the impact of business process reen- gineering on the defined distribution performances: lead times and transactional costs. This simulation is important as they enable us to estimate the conse- quence of possible experiments. For estimating chang- es in the process execution costs and lead times, a three-month simulation of the AS-IS and of both the TO-BE models was run. In the AS-IS model a new trans- action is generated daily (the level of petrol is checked once a day); in the TO-BE model it is generated on an hourly basis (the level of stock is checked automatical- ly every hour). The convincing results are summarized in Table 1. The label “Yes” refers to those transactions that lead to the order and delivery of petrol, while the label “No” means a transaction where an order was not made since the petrol level was sufficient. The comparison of simulation results (Table 1) shows that the proposed changes (TO-BE 1 and TO-BE 2) significantly lower the transactional costs as well as the average lead times. There is also significant dis- tinction between the proposed TO-BE 1 and TO-BE 2 models with regard to transactional costs and average lead times. This means that in order to foster business value out of IT implementation, the company has to apply the distribution channel reengineering with busi- ness process modelling. The comparison of AS-IS and TO-BE 2 model shows the average process costs are reduced by almost 50%, while the average lead times are cut by 62% in the case of the TO-BE 2 business PurchasingDepartment Transportation Department Distribution Centre GasStation SectorforsupplygasstationAnalyticSectorAnalyticSector Start End 1 Creation of order Identification of the need for supply (automatic) Aggregation of purchasing orders (automatic) Order needed? No No Yes Yes Sending the orders to Analytic Sector Acceptance and analysis of orders Inventory control at Distribution centre Creation of the correct orders Sending purchasing orders to DC and Transportation Consultation with transport department? Acceptance of orders Acceptance of orders Routing and scheduling Sending the plan for delivering Preparation for loading Consultation Acceptance of scheduling and routing list Loading and control Transport of the fuel to gas station Unload and control End 2 Preparation for delivery Figure 3 - TO-BE 1 model of the process
  • 7. Promet – Traffic&Transportation, Vol. 24, 2012, No. 1, 35-43 41 M. Maslarić, A. Groznik, N. Brnjac: Distribution Channel Reengineering:A Case Study model. From this it is clear that this renovation project is justifiable from the cost and time perspectives. Fur- thermore, through case study it was clarified that the companies in reengineering their distribution channel have to adopt systematic approach in order to stream- line their processes. The case study results show that full improvement in logistic performances is only pos- sible in case of implementing both IT which enables efficient information sharing and the redesign of the business processes. The significance of this paper is that it not only clarifies that mere IT implementation will not result in an expected business change, but also provides methodology that systematically assists in distribution channel reengineering. Changes described in the TO-BE 2 model have later been adopted by the petrol company. The validity of the model was tested by ex-post comparison of simu- lated and real business operations data. The compari- son validated the TO-BE 2 model since the data from operations fit simulations. The validation also supports the methodology of distribution channel reengineering (Step 6 in Figure 1). 6. CONCLUSION The paper presents a methodology for the distribu- tion network reengineering. The goal was to overcome numerous reengineering methodologies that focus ei- ther on major phases of redesign or are too detailed. The presented methodology represents a comprehen- sive tool for both academia and practitioners to apply it to the distribution channel reengineering in order to in- crease the successful rate of the reengineering project. PurchasingDepartment CentralUnitfor supplygasstation AnalyticSector Distribution center Transportation DepartmentGasStation Start Identification of the need for supply (automatic) Aggregation of purchasing orders (automatic) End 1 No YesOrder needed? Creation of order Sending the orders to DC Sending the orders to Analytic Sector Acceptance of orders Acceptance of orders No Yes Consultation with transport department? Transport optimisation Preparation for loading Sending the list for delivery Loading and control Acceptance the list for delivery Preparation for transport End 2 Unload and control Transport the fuel to gas station Consultation Figure 4 - TO-BE 2 model of the process Table 1 - Comparison of simulation results for the AS-IS and TO-BE models Transaction No. Av. lead-time (hrs) Av. work (hrs) Av. wait (hrs) Average costs (€) Yes (AS-IS) 46 33.60 11.67 21.93 60.10 No (AS-IS) 17 8.43 2.40 6.03 8.47 Yes (TO-BE 1) 46 27.22 10.26 16.96 56.74 No (TO-BE 1) 1,489 0.00 0.00 0.00 0.00 Yes (TO-BE 2) 46 12.85 4.88 7.98 32.54 No (TO-BE 2) 1,489 0.00 0.00 0.00 0.00
  • 8. M. Maslarić, A. Groznik, N. Brnjac: Distribution Channel Reengineering:A Case Study 42 Promet – Traffic&Transportation, Vol. 24, 2012, No. 1, 35-43 The methodology has been tested on a petrol dis- tribution company in order to explore the effect of information sharing with regard to the performance. The business process reengineering in the distribu- tion channel, realized through the proposed methodol- ogy, described in this paper helped achieve significant savings for the case study company by improving the effectiveness in the distribution network. The conclu- sions of the simulation experiments are significant savings in the cost and time measures. The presented case study shows the applicability of the proposed methodology; however, further case studies have to be done in the future to prove the validity. This research has also exposed a series of issues for the future work. First, the proposed methodology, which is process-based, needs to be further devel- oped in the way of connecting with IT solutions for the problems such as vehicle routing and fleet opti- mization. Second, a framework for security and risk management aspects also needs to be created. Only in that way the proposed methodology for distribution channel reengineering can be incorporated into a broader change management perspective. Currently, the proposed methodology focuses on the costs and lead times, and it should be definitely extended into the stock level, resource optimization and risk man- agement. Mr MARINKO MASLARIĆ E-mail: marinko@uns.ns.ac.yu Univerzitet u Novom Sadu, Fakultet tehničkih nauka Trg D. Obradovića 6, 21000 Novi Sad, Srbija Dr ALEŠ GROZNIK E-mail: ales.groznik@ef.uni-lj.si Univerza v Ljubljani, Ekonomska fakulteta Kardeljeva ploščad 17, SI-1000 Ljubljana, Slovenija Dr NIKOLINA BRNJAC E-mail: nikolina.brnjac@fpz.hr Sveučilište u Zagrebu, Fakultet prometnih znanosti Vukelićeva 4, 10000 Zagreb, Hrvatska SAŽETAK PRISTUP REINŽENJERINGU KANALA DISTRIBUCIJE: STUDIJA SLUČAJA Poslednjih decenija prisutan je rastući interes za inte- grirano poslovno odlučivanje između velikog broja članova logističkih distributivnih mreža. Savremene informacione tehnologije omogućavaju implementaciju ovih ideja, međutim, javlja se potreba definisanja što efikasnijeg načina iskorišćenja prednosti koje pružaju informacione tehnologije kao podrška poslovnom odlučivanju. Shodno tome, u ovom radu promovisana je metodologija reinženjeringa logističkih distributivnih mreža, sa ciljem integriranja logističkih pro- cesa unutar distributivnih lanaca snabdevanja. Akcenat razvijene metodologije je na modelovanju poslovnih proc- esa i reinženjeringu distributivnih mreža. Konačno, u radu je obrađena studija slučaja naftnog preduzeća u cilju ilus- tracije načina primene date metodologije u praksi. 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