SAXION UNIVERSITY OF APPLIED SCIENCES

Supply Chain Management Project

Group 23

SUPPLY CHAIN MANAGEMENT FINAL REPORT

Ivander Atmojo (2430243) Dominic Bartels (128571) Pham Thuy Duong (155031) Anu Perinpanathan (124302) Felix Rller (136005)

Project Supervisor Mr. Vrielink

June 1, 2011

Table of Contents
Introduction .................................................................................................................................................. 2 COMPANY BACKGROUND ................................................................................................................ 2 Total Quality Management ......................................................................... Error! Bookmark not defined. German Animal Feed Market .................................................................................................................. 3 1. 2. 3. 4. German Animal Feed Market ...................................................................................................... 3 Market Segments ......................................................................................................................... 3 Deutsche Tiernahrung Cremer ..................................................................................................... 5 Decision Making Unit .................................................................................................................. 7

Marketing Mix ......................................................................................................................................... 7 Market Research .........................................................................................................................................10 Supply Chain Management .........................................................................................................................13 1. PRODUCT DESCRIPTION ...........................................................................................................13 2. 3. 1. 4. 5. RAW MATERIALS SUPPLEMENT .............................................................................................13 MANAGING SUPPLY CHAIN .....................................................................................................14 Production Process ......................................................................................................................14 The Bottleneck Situation.................................................................................................................16 CUSTOMER INFLUENCE ............................................................................................................16 Detailed Process of All-round Soja .................................................................................................15

Total Quality Management .........................................................................................................................17 PURCHASE POLICY ............................................................................................................................17 1. The purchase mix ...........................................................................................................................17 2. 3. 4. Total cost of ownership ...............................................................................................................20 Purchase process and delegation of responsibilities in the purchase area...................................20 The role of TQM .........................................................................................................................21

METHODS OF QUALITY INSPECTIONS/ APPRAISAL AND REASONS .....................................21 QUALITY DESIGN ...............................................................................................................................22 1. 2. Abilities .......................................................................................................................................22 Sustainability...............................................................................................................................22

CUSTOMER SERVICE .........................................................................................................................23 The pre-transaction elements ..............................................................................................................23 The transaction elements.....................................................................................................................23 The post-transaction elements.............................................................................................................24 The Deutsche Tiernahrung Cremer GmbH reasons for implementing the customer service .............24 COST ACCOUNTING ...............................................................................................................................25 Full Costing calculation ..........................................................................................................................25 Alternative full costing calculation .........................................................................................................25 Factors that influences the sales price .....................................................................................................26 Cost control .............................................................................................................................................27 CONCLUTIONS AND RECOMMENDATIONS ................................. Error! Bookmark not defined. REFERENCES ...........................................................................................................................................29

Introduction
COMPANY BACKGROUND
The Deutsche Tiernahrung Cremer GmbH is a German animal food manufactuers, produce concentrated food for both livestocks and pets. In 2007, Deuka Deutsche Tiernahrung and Cremer Futtermhlen merged to form The Deutsche Tiernahrung Cremer GmbH, operating as a daughter company of the Cremer Group. With approximately 650 employees, produce nearly 2,4 milion tons compound feed, and generate 500 million revenue, the Deutsche Tiernahrung Cremer GmbH one of the biggest animal food producers in Germany (holding 12% market share).Moreover, They also export some special products within the Euro zone. Though the headqurter in Dsseldorf, they have built an array of facilities all over Germany such as Worms, Hltinghausen, Regensburg, Bramsche, Knnern, Herzberg, Erfurt, Emden, Bremen, Mannheim, Plochingen , which all near the main watercourses (canals, rivers) within Germany, for example Rhein River. Every their small factory comes along with small departments, such as technical purchase, raw material purchase, laboratory, sales, and (Vestries/Expedition). Operating in a high competitive market animal food, The Deutsche Tiernahrung Cremer GmbH have chosen to become a decentralized organization with a large range of brand, such as Deuka, Rekord, Nordkraft, and ReCo. These strategies increases customer proximity and maximize the ability to be closely connected within their operation area including suppliers and consumers.

Figure 1: Plants Location

German Animal Feed Market

1. German Animal Feed Market Annual production of compound feed in Germany is very stable. Since 1995/96 average production circles around 19 million tons. With a production of 21.3 million tons German compound feed production reached a new high in marketing year 2009. This volume includes 934,000 tons of milk replacers and feeds for other animals. The positive development is a result of a sharp rise in red meat consumption and production. Demand has been driven by a significant increase in compound feed for pigs and cattle by 708,000 tons or 8.7% to a total of 8.85 million tons in 2009. The demand for compound feed in particular in types of feed varies from time to time following changes in markets, changes in number of animals, changes in legislation (e.g. use of meat and bone meal) and the availability of farm grown raw materials. The number of compound feed manufacturers in Germany in 2009 fell by 9 to 352 reporting firms. Increased production and the reduced number of producers have led to a further increase in average production capacity of 3,500 tons to 58,777 tons per feed producer per year. The number of manufacturers with an annual production of over 200,000 tons of feed remained constant with 30 enterprises. Total volume of production of these companies rose by 200,000 tons to 9.1 million tons. The average annual production reached 303,311 tons per plant. This group of manufacturers represents 44% of the German market. Ten companies have an annual production of more than 300,000 tons and together (4.1 million tons) represent almost 20% of the market. Next in size are enterprises with a production between 50,000 to 200,000 tons (85) which take almost 42% of the German market. 2. Market Segments German Animal Feed Market is segmented as the types of feed. In general, compound feed is divided into five different kinds (refer to 5 different spices group of consuming animals) including Cattle feed, Pig feed, Poultry feed, Horse feed and Miscellaneous feeds. Deutsche Tiernahrung target segment is the pig feed, which accounts 65% of their total production and most profitable market segment in the German animal feed market.

German Animal Feed Market Segments

Cattle Feed Pig Feed Poultry Feed Horse Feed Miscellaneous Feeds

2.1. Cattle Feed Compound feed for cattle supplies around 15% of the energy needs of the ruminants. The demand for cattle feed shows a declining trend that started in the early nineties of the previous century. Obviously this was caused by the then emerging BSE-crisis and the milk production limiting milk quota under EU milk market legislation. Compared to last year, about 4.8% of the cattle farms in Germany stopped. Total cattle numbers fell 0.5%. Despite these negative numbers the total number of dairy cows increased slightly to 4.06 million (+0.2%). The biggest drop in cattle was in the female beef cows, which decreased to 70,000 head or -19.4%. Cattle feed saw a significant increase, from 5.97 million tons 2008 to 6.38 million tons in 2009 or an increase of 6.9%. Cattle feed now is the second most important compound feed produced in Germany with a share of almost 30% of the total feed market. With the strong demand for milk this trend is likely to continue. 2.2. Pig Feed Due to an outbreak of swine fever in 1996 the number of pigs in Germany declined from 26.16 million head in 1992 to 23.55 million head in 1996. Since then the number has been steadily rising. Little more pigs were kept as a year ago according to the livestock census of November 2009. A total of approximately 26.95 million pigs were recorded, up 128,000 animals or 0.5% more than in November 2008. The number of fattening pigs increased by 1% or 115,000 to 11.13 million animals. At the moment of counting about 6.74 million pigs stayed in the stables, 0.8% more than a year earlier. Despite the increase Germany is still under sufficient in pork production. A contrary movement was seen in the development of breeding sows. Their numbers fell by 2.3%. The stock of gilts was as much as 6.4% lower than in November 2008. One of the drivers of the feed production increase in Germany was the significant rise compound feed for fattening pigs by 708,000 tons or 8.7% to a total of 8.85 million tons in 2009. Pig feed takes 41.4% of the total feed market in Germany. Compound feed is responsible for about 35% of the energy needs of the pigs in Germany. The remaining 65% (about 13 million tons) is mostly coming from farm grown raw materials, mainly cereals such as wheat and barley, and to a lesser extent from purchased soy cake (about 1.5 million tons) Deutsche Tiernahrung has very specialized products and capable of adding different ingredient at the customers request.

2.3. Poultry Feed German consumers were keener in purchasing poultry meat in 2009. Consumption rose around 8%, and almost reached the level of 2005 again. This increase in consumption was not reflected in an increase in feed production. Most of the extra consumption was imported. Poultry feed production slightly decreased from 5.26 million tons in 2008 to 5.18 million tons in 2009 or a minus of 1.5%. The effect was mainly caused by a decrease in the production of broiler feed (-3.2% to 3 mill. t). Layer Feed: Industrial compound feed production is responsible for around 82% of feed consumption of German poultry (layers and meat birds). Germany houses approximately 39 million laying hens. However, the decision to phase out battery cages and the transition to free range and barn housing are clear indications for a reduction of this number. This also implies a reduction in demand for layer feed. Currently layer feed production is around 2.1 million tons. 2.4. Horse Feed German horse lovers keep about 500,000 horses, ponies, and fillies, mainly for equestrian activities or for leisure. The compound industry annually serves this market with 265,000 tons of compound feed for horses. 2.5. Miscellaneous Feeds Apart from farm animals there many more animals to feed that make use of the products of the compound feed industry. This group contains a wide variety of animals, such as dogs and cats, birds, reptiles, fish, zoo and laboratory animals. Production of feed for these animals annually lays around 350,000 tons. Although this volume is only a small portion of total production, the margins are much higher. 3. Deutsche Tiernahrung Cremer 3.1. Targeted Segment Deutsche Tiernahrung Cremer produces all of five kind of feed have been mentioned earlier. However, the company focuses especially on pig feed segment, which makes up nearly 65% of their total production. Pig feed is the most important market for German feed compounders according to a feed market evaluation of the German interest group of pig farmers (ISN) in Damme. ISN examined the structure of German pig feed production in 2006. Since then production of compound feed for pigs in Germany has increased by 9.6% to 8.92 million tons. The number of manufacturers fell, according to the Ministry of Agriculture (BMELV) simultaneously by 8.6% to 330 companies. Behind are two years with high raw material prices. Many farmers took advantage of the high price period, and sold their grain rather than to mix it themselves. Also northwest Germany, the fattening capacities were expanded vigorously. The structural changes in the pig farms also had its effects in compound feed use. In larger, companies home mixing often binds too much capital and labor and compound feed better fits in the operation. 5

3.2. How does the company anticipate? Deutsche Tiernahrung Cremer is the number two player in the pig market. They and the other 9 companies in the top ten firms anticipated on the market change by increasing their total tonnage by 12.5% to 11.5 million tons of compound feed. This way the ten largest feed makers increased their total market share to 55%. The market share of the top 25 companies is now around 70%. Compared with other sectors of the agribusiness (agricultural chemicals, meat industry), the concentration ratio is relatively low. This still ensures intense competition in the animal feed sector. This competition is mainly dependent on location of the feed plants, which is in favor of the pig industry in northwest Germany. Ranking 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Company Agravis Raiffeisen Deutsche Tiernahrung Cremer Brring HaGe Kiel For Farmers GS Agri Fleming & Wendeln ATR Landhandel Rothktter LBD Damm e. G UNA HAKRA Hansa Landhandel RWG Hoya RKW Sd RWZ Rhein-Main Kohnen Strahmann Getreide AG H. Schrder Diekgardes RWG Ankum Wulfa-Mast Muskator-Ovator KOFU Raiffeisen-West Mnsterland Rest Pig feed market share (%) 9.5 8.4 7.3 5.0 4.0 3.9 3.5 3.4 2.5 2.2 1.7 1.7 1.6 1.3 1.3 1.3 1.2 1.2 1.2 1.2 1.1 1.1 1.0 1.0 0.9 31.3

4. Decision Making Unit Deutsche Tiernahrung Cremer attempts to build long term relationship with all their suppliers, which is based on stable quality of stock and loyalty. The buyer technique to be applied here is mostly straight rebuy. In order to find out high trust worthy supplier, the company pays high attention on the first time selection, or the new task. The buying center of the company is made up by: The Initiators: this may be the staff from R&D department, who might suggest product modification or new product development. This role also can take over by the quality inspector or even the customers when they have recommendations about product quality which lead to modification about kind or quality of the stock. Gate Keeper + Byer + Deciders: these roles are under the control of the head quarter of the Deutsche Tiernahrung Cremer. Depended on the level of importance of the decisions, the task will be assigned for an individual or for team, who are going to take full responsibilities about the results. Users: This again comes back to the quality inspectors and the customers who will have the judging power on the final product quality. Influencers: This role in the Deutsche Tiernahrung Cremer case is difficult to identified and located.

Marketing Mix
1. Product decisions The Deutsche Tiernahrung Cremer GmbH has made for its products several decisions. Many years ago, they have tried to develop a brand name for its products: deuka (Brand name) all round soya (Product name). Through a brand name, deuka, which they put on all their products, the Deutsche Tiernahrung GmbH tried to differentiate their products from competitor products. The functionality differs from product to product. The company has many different products for different animals. Further, the main functionality is to feed animals. Therefore, product specifications such as the use of different or new ingredients were adapted for its special use for different animals. The product quality is taken into consideration when developing new products and the standard quality is regulated and controlled by the government and independent laboratories to guarantee high quality for the consumer. Safety goes hand in hand with the quality. The product should not cause any damage or health problems for the animals. Through quality inspections, this can be avoided. 7

Packaging for this kind of product is not easy, because of the amount the customer orders. A package cannot be made for an order of 10.000 kilo grams. So the Deutsche Tiernahrung GmbH decided to deliver the products without any package to the customer. They achieve it with transport companies which have special trucks where the animal food can be brought as bulk goods. For any claims, the sales force is responsible and stays in contact with the production facility department to act immediately. This means, the sales force has to find ways together with the sales department to solve problems. This is commonly the replacement of a product, or, before that, to find the cause of the damage to avoid it for the future. In the animal food sector, there were normal warranty standards defined by the government, which every animal food manufacturer has to follow. The Deutsche Tiernahrung GmbH has to put a list on the delivery order, where the customer can see what kind of ingredients are in the product as well as the product endurance. But there is no normal warranty you can find on products such as technical products like a mobile phone or washing machine. A kind of special services is the add-on of antibiotics to the normal food product. Or another food component the customer wants to put into, such as a bigger amount of corn or something. The sales force and the staff in the sales department are responsible for the after sales service. They have to answer questions, dealing with claims and taking care of the treatment of customers. 2. Price decisions: The pricing decisions made by the Deutsch Tiernahrung Cremer GmbH are depending on the market price of the product components. The pricing strategy for this company can be considered as high price in contrast to competitor prices. The competitor prices have a big influence of their pricing strategy. The animal food market is highly competitive and so the company has to adapt their prices to prices of the competitors. Prices can change per month, depending on market price. Volume discounts can be made at an ordering amount of 50 tons per sales contract. Cash and early payment discounts were made by the company to receive interest rates. The margins for their products vary per product. Sometimes they can achieve a high margin and sometimes they have to sell their products with a lower margin to stay in the market. It relies on the competitor price and market price for the components. Delivery costs are also taken into account. It is necessary to guarantee a healthy margin for the transport companies. They have a commonly a long lasting business relationship. 3. Place decisions: The Deutsche Tiernahrung GmbH has decided to deliver their products to the customer by special transport companies. These transport companies are located closely to the customers. It is absolutely necessary to deliver the products in the right time at the right place.

The inventory management is held by the company itself. The transport companies only have to deliver the products. Special warehouses are not necessary for the sales process. Warehousing takes place for the company when buying huge amounts of food components outside Europe. This means, soya beans delivered from Brazil to Amsterdam for example, and at the arriving date the company is not able to receive the goods. So there must be are warehouse to store it until it can be delivered to the company. 4. Promotion decisions: The Deutsche Tiernahrung GmbH is promoting its products by with advertisements in special farmer magazines, by their internet site, brochures, and mainly by their sales force. It can be mainly considered as push promotion strategy. The sales force is attending every animal food trade fair to promote their products. Trade fairs are necessary to talk to many potential customers per day, which cannot be done by visiting them all on one day by the sales force. This reduces costs and makes it easier to promote the products to huge amounts of potential customers.

Market Research
1. Introduction In order to further improve their products and to achieve greater satisfaction on Deuka Tiernahrungs customers, Our Group has done a market research based on several sources, namely from the Internet, from articles, and from interviews with Deutche Tiernahrung marketers, salespersons, and several customers in Germany. 2. Objective

The objective of our Market Research is: Create a market overview of direct competitors and to assess the market share of Deutche Tiernahrung in the German animal feed market in 4 weeks, which will be in the 4th quarter of the 2010-2011 study years. 3. Central Research Question

In what way the market research can be conducted to gather as much detail as possible about our customers satisfaction in regards of our services, products, and company image? 4. Sub Question

4.1. Who are our customers? How many customers in total does the company have? In Europe? In Germany? Into how many segments are our customers divided? Which customers are our top customers? Which customers have priorities? Which customers are new? Which customers are most likely to be delinquent?

How much do our customers in total/Europe/Germany buy from us each year?

4.2. What are the customer impacts on our company? What are the roles of our customers in our company? How much do our customers affecting our companys strategy?

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4.3. What is to be assessed from the customers perspective? What are their opinions on our delivery method? What are their opinions on our e-commerce? What are their opinions on our logistic? Are there any comments on our products? Are there any issues about our performances (including pricing)? How do our customers see our companys image? What improvements should we made?

4.4. What are their comments on our competitors? How are our competitors performances according to our customers? How do our customers see our competitors? Do any of our customers also have business with our competitors? How does our competitors product, logistic, service quality compared to ours?

5.

Procedure and Method

In order to find an answer to our sub question we need to make use of certain techniques, the group will decide which techniques are most suitable and effective, but then it remains an individual choice, because each group member may have a different preference of which techniques should be used. We will be able to gather preliminary information that will help us to define the problems or questions. We will try to use all the knowledge we have collected from the first and second year and apply it with this case. We will base our market research on a book that we used in the 1st year, Research Methods for Business Students written by Mark Saunders, Philip Lewis and Adrian Thornhill, which we have found very helpful. We will read other literature that we think is necessary and that could help with defining the problems and that could give us more information. Also, a formulation of questionnaire and direct informal interviews will be our main approach to gather information of the Deutche Tiernahrungs customer satisfaction. Procedures that we will use are to use direct informal interviews and questionnaires that we can get information from several different customers in Germany. We will try different methods and our group will deliberate on the appropriate method. Methods: we will prepare a descriptive research where we will use interviews, questionnaires and the internet to get information in order to define our central research question and find an answer to it.

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6.

Time Planning Objective

Make lists of customers to be interviewed

Week
4.1

Date
18-April-2011

Deadline
22-April-2011

Final Deadline
Get approval on the list of customers by Deutsch Tiehnarung Executive and Marketing Get approval on the questionnaires and the informal questions by Deutsch Tiehnarung Executive and Marketing Get at least 1 appointment in 1 day for the next week

4.2

Formulate questions for informal interview Create questionnaires

25-April-2011

29-April-2011

Holiday Week

Make appointments for formal interviews with business customers (executive board) Make appointments with farmers customers Conduct interview based on appointments

2-May-2011

6-May-2011

4.3

9-May-2011

13-May-2011

Processed questionnaire into data and process informal interviews

4.4

Make more appointments for next week Conduct interview based on appointments

16-May-2011

20-May-2011

Get at least 1 appointment in 1 day for the next week Processed questionnaire into data and process informal interviews Processed questionnaire into data and process informal interviews Submit first draft to Deutsch Tiehnahrung Executive Board and Marketing Submit second draft to Deutsch Tiehnahrung Executive Board and Marketing Get approval on the second draft Get approval on Strategic Improvement Proposal

4.5

Conduct interview based on appointments

23-May-2011

27-May-2011

Generate strategic Proposal based on results of interviews 4.6 Generate Strategic Proposal for improvements based on result of interview 30-May-2011 3-June-2011

4.7

Finalize Strategic Improvement proposal and hand in the Final Version

6-June-2011

10-June-2011

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Supply Chain Management

1. PRODUCT DESCRIPTION
Deuka all-round Soja All- round Soja is a feed product for pigs. It contains Soya Powder with minerals for safe mast mixtures. Highly digestible protein source (HP-soybean meal, synthetic amino acids) provide an ideal Amino acid safe supply Flexibility in the mix design perfect complement to your own farm components Mixtures by safe application rates: the incorporation of micro-components are eliminated

2. RAW MATERIALS SUPPLEMENT

Ingredients/components: 1. 2. Crushed Soya beans Wheat bran Supplier: Mller, Brake (Germany) Cargill, Amsterdam (The Netherlands) PPHU, Gromadka (Poland) Euromills, Prag (Czech Republic) Mackprang, Hamburg (Germany) Trump, Ludwigsburg (Germany) Brring, Dinklage (Germany) Agrardirect, Mannheim (Germany) EH Export, Podelbrady (Czech Republic) Knaup, Etteln (Germany) Westhoff, Neuenkirchen (Germany) Esco, Hannover (Germany) Tessenderlo, Rotterdam (The Netherlands) Cremer, Hamburg (Germany) NOBA, Zwanenburg (The Netherlands) Van Wijk, Dronten (The Netherlands) Sumitomo, Machelen (Belgium) Olesen, Bardowick (Germany) Adisseo, (France)

3. 4. 5. 6. 7. 8. 9.

Calcium carbonate Sodium chloride Calciumphosphat Sugar beets treacle Vegetable fat Methionine Premixture Vitamin A

10. Premixture Vitamin D

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The Deutsche Tiernahrung Cremer GmbH is producing many different compound food products supplied from a range of suppliers from all over the world. In order to keep an overview of all these suppliers, the company has a database of suppliers and supply chain data, supplier evaluation, supply time schedules, and detailed order processing for each supplier. Long lasting business relationships are established between the company and all the suppliers. In order to do this, the company has to treat all the suppliers equally, especially when orders are not disclosed between suppliers. The company has several suppliers for each raw materials, this is done in order to be flexible in case of failures in deliveries by the suppliers. In case of very essential components of raw materials, the company has contracts with a few suppliers that lasts for more than 10 years. The Deutsche Tiernahrung Cremer GmbH strategy in managing the supply chain is to have a long lasting business relationship with a wide range of suppliers to supply a wide range of raw materials in order to anticipate failures and satisfy the customers with a non-stop supply of livestock food.

3. MANAGING SUPPLY CHAIN

1. Production Process Productions in Deutsche Tiernahrung Cremer GmbH are planned by a Production Chief Executive and a Master Production Craftsman. Both men are responsible for: Input product mixture into the computer Shift Management Which order should be produced Timing and amount allocation of each order

The Purchase Department is responsible for purchasing the necessary quantity of raw materials needed for fulfilling production order.

(Production Process of Deutsche Tiernahrung Cremer)

Raw Material Acceptance Grinding Mix Press Load

Figure 2: Production Process

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The production team of each shift for each machine consists of five persons with different tasks: 1. Grinding Machine Operator 2. Mixer Machine Operator 3. Conveyor bands Operator to fill raw material tanks 4. Antibiotics and vitamins sorter 5. Loading machine Operator to load finished products into Lorries. Detailed Process of All-round Soja 1. Raw materials arrived from suppliers from lorries or ship 2. Quality Check of raw materials are conducted before unloading a. Quality check: i. Odor ii. Texture, Size, Color iii. Moisture b. In case of faulty raw materials, samples will be taken to the laboratory to determine the problem. 3. Raw Materials are unloaded onto specific pipes and conveyor bands to raw-material-specific storage tanks. 4. Vitamins and antibiotics are delivered in 25Kg bags and not loaded onto storage tanks. 5. Production order are made by the Production Chief Executive and Chief Production Officer 6. Raw materials are moved by grinding machine operator on the ordered quantity to raw-materialspecific grinding machines to be turned into powder. i. Random samples are taken and checked to ensure the correct quantities are made. 7. Powders are transferred into smaller tanks to be mixed in specific quantities for specific products. 8. Mixer machine operator input the amount of the All-round Soya Powder for pigs into the computer 9. The mixer machine automatically mix the correct quantity of raw materials needed to produce the All-round Soya Powder for pigs. 10. The mixtures are moved to loading machine to be moved into lorries or trucks. a. Random sample are taken and divided into three (the samples are held for 10 years. After that, no claims can be made and new samples are needed): i. For an independent testing laboratory ii. For Deutsche Tiernahrung Cremer GmbH themselves iii. For governmental inspections 11. The finished mixtures are loaded into third-party Lorries.

12. The Lorries are weighted to ensure correct quantity has been loaded and will be delivered to the customer. 15

4. The Bottleneck Situation

Occurs when demand exceeds production capacity, this mainly happened in January and February. Deutsche Tiernahrung Cremer GmbH needed to produce on the weekends and creates additional shifts. New measures have been taken to fully automatize the production process of Deutsche Tiernahrung Cremer GmbH production facilities. In 2010, a single production officer was able to produce a mixture of standard compound food, from his computer at home. By implementing this new automation process Deutsche Tiernahrung Cremer GmbH in such busy time, Deutsche Tiernahrung Cremer GmbH does not require more operator on site. In case of production failures or creating a mixture of some special compound food, special agreements will be made to meet these demands or failures. To meet these demands or failures, the production and sales department will create special arrangement to deliver the order to the customers.

5. CUSTOMER INFLUENCE
The Deutsche Tiernahrung Cremer GmbH has specific formulas and mixtures for each product. However,The Deutsche Tiernahrung Cremer GmbH also provides tailor made products. Customers made special orders to add several or less component in their order, this too is welcomed and encouraged in order to satisfy individual customers needs.

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Total Quality Management

PURCHASE POLICY
1. The purchase mix a. Quality policy The Deutsche Tiernahrung Cremer GmbH consider the product quality is the key sucess of the business, build up the great reputation of the animal food market leader in Germany. Therfore, the company highly concerns about its responsibility for the quaily and safety of the products by an excellent knowlegde of internal and external process from raw material purchasing to the final product provising. The Deutsche Tiernahrung Cremer GmbH quality management system is based on 1: Careful selection of raw materials and suppliers. Sophisticated and risk-based inspection system in the raw materials and finished goods area. Apply latest technology production equipment with a high degree of automation and high qualification and continuous training of employees.

All quality-relevant processes are represented in the in-quality monitor documentation. The system is based on the international quality standard DIN EN ISO 9001and the German progressive comprehensive quality system QS, supplemented by a plant-specific HACCP system. In addition, the quality management system takes into account a variety of regional and national quality programs. The company is convinced that only a high quality orientation leads to a sustainable success. The final products therefore have too qualified with the quality values: Meet the nutritional needs of animals optimally Consistently high quality guarantee Be accompanied by a concerted feeding to the individual customer consultation and At a fair market price available.

b. Price policy Though price is commonly the important aspect to put in consideration, the others such as transport or storage costs are also influencing the decision. Responding to the Good Agriculture Practice (GAP), The Deutsche Tiernahrung Cremer GmbH engaged to prefer national raw materials. Those kind of materials are shipped to the factories by truck, since they mainly come from Germany or its neighbor countries. The deliver frequenice is depended on agreements. For example, the Deutsche Tiernahrung has agreements with the suppliers to buy 100 tons and the delivery should be 25 tons per week. Up to the time of delivery, the storage is organised by the supplier.

http://www.deutsche-tiernahrung.de

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However, some specific raw materials are also imported from outside EU zone such as soya beans. In this case, they are brought in hugh amounts, decided by the the head purchase department to get purchase price reductions. From here we are going to take soya beans as typical example of the international transportation processes. Soya beans were bought from an oil mill in Brazil to Amsterdam. The incoterm is applied is FOB 2 (free on broad), this means that the price for the soya beans includes the shipment from Brazil to Amsterdam. The risk is held by the supplier. In Amsterdam, the raw materials were loaded from the oversea-ship to the small ships. At this moment, when loaded from international to small ship, the cost, insurance and freight is held by the Deutsche Tiernahrung GmbH till it arrives at the small production facilities. It is also the purchasers responsibility that small ships are right in time in Amsterdam. So they have to plan and organize ship to be on a specific place for this kind of purchase. c. Supplier policy The Deutsche Tiernahrung Cremer GmbH engages on high quality and safety procts. Due to the fact that the quality of the output absolutely depend on the quality of the raw materials anf the reliability of the suppliers. As we have mentioned arelier in this report, suppilers selection in one of the most important aspects of the company quality policy. Their suppliers must have meet a number of conditions to ensure safe production, good manufacturing pratice and careful product handling. All the suppiler have to be certified with 3: Distributors of commodities, including cereals, legumes and oilseeds for QS (trade), B.3 GMP, GMP or GMP B.2 Belgium certified. For direct suppilers of cereal, legumes and oilseeds have to be recognized by GTP. Producers of raw materials are certified to QS 4 Farmers, who direct supply cereals, legumes and oilseeds, are not required any cerificates.

The Deutsche Tiernahrung Cremer GmbH have chosen single sourcing, which means they have one or a few suppliers for specific raw material. It is because the company seeks for long term relationships with the suppliers. Due to the fact that price is not always the main evaluation aspect for choosing a supplier; the fundamental aspect is the guaranty of high steady quality. d. Communication policy Internal communication Internal communications are imperative necessary. The small purchase departments are staying in steady contact with the head purchase department in Dsseldorf. Good communication is therefore needed to plan, organize, control and lead purchase processes to a faithful agreement as working together. For this reason, when starting a new job in one of the small purchase departments, visiting the head purchase department is mandatory. Not only when starting a job there, also for training,
2 3

ICC Incoterm 2010 http://www.deutsche-tiernahrung.de 4 Herstellung von Einzelfuttermitteln

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employees visit the head quarter. Extra training for purchasing raw material is also held by the head purchase department as an example how the training looks like. New requirement of personal is needed when existing personal gets retired or cannot go on with work, because of healthy problems or pregnancy. In this case, the requirement for a job in one of the purchase departments is an apprenticeship as an industrial clerk beforehand. For the production area, no special apprenticeship is needed. A good training from the company is enough. But the Deutsche Tiernahrung is highly interested to train people. Meaning, young people who are interested in an apprenticeship as an industrial clerk or animal food producing mechanic are welcome. That is their aim to invest in the future of the company. External communication External communications should not be underestimated. In the purchase area, long lasting relationships with suppliers were built. In the Sales area, or selling in general, consists of Salesmen. These Salesmen have direct contact with the customer. In the animal sector it is important, because this is a strange business. Farmers are used to be visited by the salesman. Personal talks and a good handshake is a proper tool to get in business with them. For the whole animal food sector, the government has made rules and regulations to guarantee high quality and save food products for animals and its end consumer (milk & meat). The rules and regulations are inspected once a year. A communication between public institutions is always best. Because the animal food market is highly competitive, a look besides what the competitor is doing is always the case. This influences the salesman, sales department, purchase department, quality management, product development and the whole production process. All parts are taken into consideration.

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2. Total cost of ownership The Deutsche Tiernahrung is working with 2 big raw materials exporter and importer, the Chicago Board of trade and the Hamburger Grain. They always place the orders with huge amount of stock (up to thousands tons) in order to get price reductions. Since dealing with huge amounts of raw materials, the contracts are long term, and the total amount of stock is divided in to smaller portion for shipment. Detail quantity of each ship and delivery times are agreed by both parties. For example, a contract for purchasing 5000 tons of soya beans can take a period of 3 months to fulfill, with approximately 17 ships of 300 tons. The price of the whole shipment was fixed and decided when the contract was signed. As it is showed that the contract period is quite long, up to months, both Deutsche Tiernahrung and their suppliers are passive with market and price changes. It may be lucky for their suppliers if price goes down, or conversely Deutsche Tiernahrung has good price if price go up. That is what the purchase department has to take into account or better to say, taking risks. Avoiding this risk is not always possible, because buying or trading at the exchange is always risky. According to their quality and supplier policy, Deutsche Tiernahrung is not always interested in the cheapest offers; they seek to manage to build long lasting supplier-buyer relations. This explains why there were examples of accepting to purchase on higher price with long term business partners. Based on long lasting relationship, Deutsche Tiernahrung and their suppilers are supporting each other when possible. To reduce costs is of both interests. 3. Purchase process and delegation of responsibilities in the purchase area In Dsseldorf (Germany) is the head purchasing department. This department plays a major part of the purchasing process. They are doing the main part of controlling, planning, and coordinating. The department is divided into small teams; each team is dealing with different raw materials. The purchasing teams have to deal with buying raw materials internationally. They are dealing with purchase contracts, ordering, controlling, plan transports, terms of delivery, specifications, and paying bills. From there, nearly every raw material component is purchased and they coordinate to which production facilities the different raw materials will be delivered. For other raw materials, the small production facilities decide by their own, how much they order and when. In this case, the head purchase department only makes a big amount available. For example, the department buys 500 tons of soya beans from Brazil. Through the internal database each of the eleven production facilities is able to see the available amount. Then speak with the suppliers when it should be delivered, which amount and by whom. The purchase departments in the small production facilities are also buying small amounts of raw materials from local suppliers, such as farmers, located around the production facilities. The last control, if the raw materials were supplied, and the quality check, lies in their responsibility field.

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4. The role of TQM The quality management department in Dsseldorf develops quality standards and coordinates from there the whole quality process. This department is responsible that in the small production facilities everything is undertaken to maintain high quality standards. The QM department creates quality guidelines, such as quality tasks employees have to follow to take the right steps in accordance to their work task. Security guidelines are just one example. In each production facility there is a person who is directly appointed to maintain the quality process. In most cases this is the chief executive of the small production facility. The department is also responsible that certifications like the HACCP, ISO 9000:2000, or GMP+ are kept for all production facilities. This means, once a year, a quality inspector from an independent certification organizations is visiting the small production facilities. The inspector is then looking, if everything is underdone to get a new certification. This means, is the work area save (are Exits marked), is whether the employee wearing proper dress for the task he has to do, or the employee following the quality guidelines provided by the QM department.

METHODS OF QUALITY INSPECTIONS/ APPRAISAL AND REASONS

Quality inspection takes the rival part in the whole company activities. To ensure the quality of the final product, reduce costs, and satisfy customers, beside supplier selection, checking carefully the quality of the raw materials and the feed is essential.

Deutsche Tiernahrung is using random sampling as the quality inspection method. Because each day a factory of Deutsche Tiernahrung can process the huge amount of raw material and then generate tons finish, quality check for single kilogram of inputs or outputs is not reliable. Sampling is absolutely perfect option for this case, regard to effectiveness and efficiency.

When the raw materials are delivery to the factory, before they can go to the ware house, the responsible inspector of the company will take check the quality of them. Depend on what kind of raw materials, 1 sample will be taken every certain amount with the presence of the vendors. From that sample, the inspectors will physically check and machine chemical checks the conditions of the raw materials, such as color, texture, shape, odor, size, and moisture and nutrition level. These are steps that are done before actual production can be started. This sample also is kept by the company for further testing incase customer compilations. For the complex raw a material such as vitamins, the Deutche Tiernahrung has quarantine tanks at the suppliers, where then an independent laboratory examines the raw material before they are delivered.

In the final stage of the production, with the inspectors will take the 3 samples of the final outputs, one for the company record, one for the customer, and the other for to an independent laboratory to examine whether the products quality meet the requirements. 21

Moreover, in each factory, Deutsche Tiernahrung has a facility management department, that is responsible for inspection of working areas including the machines cleaning. To maintain quality within storage or production, all employees are responsible with the right handling of raw materials, or following quality working tasks provided by the QM department. With complete systems of quality inspection, the company always can control and monitor their product quality and track back any problems if the customer complaint about the quality.

QUALITY DESIGN
1. Abilities Availability Reliability Maintability Serviceability Field service

Safety Life span

The product is available and does function as animal food Failures in production are reduced to a minimum through computer testing, double checks, and sample tests. Once the product is produced, there is no way to maintain the product itself, it is animal food. It only can be replaced by a new food oduct. As said above, no repairing of food stuff, only exchange old versus new one. The company can act if failures occur. It depends where the failure occurs, but the company is willing to do everything necessary to act quickly and properly, for example a quick exchange of an old/damaged food product for an new one within one day. This is checked by the QM department, and also undertaken by the employees who follow quality task in daily routine. Once the prodcut is used (eaten by the animals), it is gone.

2. Sustainability In the procurement of feed ingredients, Deutsche Tiernahrung ensures compliance with the criteria of sustainable agriculture 5: They prefer nationally produced raw materials, produced according to the guidelines on good agricultural practice (GAP). They actively support the initiative of our European Union WWF and FEFAC for sustainable agriculture in the feed-exporting countries and responsible soy cultivation (RTRS). In addition, Deutsche Tiernahrung is guided by their suppliers for Brazilian soy products, strict compliance with national environmental laws and ensures that all area and volume constraints for the Amazon rain forest. In the production process, the company based on the international quality standard DIN EN ISO 9001and the German progressive comprehensive quality system QS, supplemented by a plantspecific HACCP system. In addition, the quality management system takes into account a variety of regional and national quality programs.

http://www.deutsche-tiernahrung.de

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CUSTOMER SERVICE
The Deutsche Tiernahrung Cremer GmbH has shown the four P of their company to show the service quality for their customers. Product Price Place Promotion Steady developments of new products to changing market circumstances are necessary. Prices are influenced by raw material costs, production costs, competitor costs, supply costs. A small production facility located nearby the customers and transport firms to transport products to customers. Promotions are done through the sales force that goes door to door to different customer facilities and on trade fairs.

The Deutsche Tiernahrung Cremer GmbH is focused on making loyal customers, rather than looking for new customers. The sales force reports each week to the sales department what is going on at the customers. Creating customer value is essential for a long relationship between the company and the customer. As the customer places the order, it only take one day to deliver the order on the fastest, and it also depends on how many order are processed on the time. However the normal timescale until the order is delivered is up to three days. All orders are treated as equal as possible, but in cases of special requests, such as an order that has to be delivered within 4 hours, some considerations have to be taken account. These considerations are mainly the location of the customer, the machine capacity utilization, and other orders being processed at the time. These are all undertaken to maintain a high loyalty level of customers to the Deutsche Tiernahrung Cremer GmbH, as customers are their main asset. The Deutsche Tiernahrung Cremer GmbH components of customer services are described below: The pre-transaction elements The sales force of Deutsche Tiernahrung Cremer GmbH promote the company from trade fairs and door to door to customer facility, also brochures and sales information can be found in their website. The transaction elements The company uses FIFO (First In First Out) method. Normally, orders made three days in advance would make planning easier, but most of the time the company have to handle JIT deliveries. To deliver the animal food in such a short notice, the company held stocks most of the time. Payments are stated in sales contract, which is within 4 weeks of first delivery of the order, as the total amount of order is not shipped at once but incrementally as the customer needed. The Deutsche Tiernahrung Cremer GmbH also have different financing options, one of them is for livestocks that are grown for human consumptions. This contract made is signed for a number of days depending on the livestock until its delivered to the slaughterhouse. This contract makes payment easier for the customers and also a steady production for Deutsche Tiernahrung Cremer GmbH, as the customers are able to pay by installments.

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The post-transaction elements Deliveries are planned and coordinated by the sales department with some transportation companies. The Deutsche Tiernahrung Cremer GmbH has arranged deliveries as efficient as possible by utilizing the full capacity of the transportation for each deliveries made, by dividing orders into small amounts for each customers delivered. In case of complaints by customers The Deutsche Tiernahrung Cremer GmbH will send their sales force to investigate the complaints. If the complaints were due to improper cleaning of the customers warehouse / storage, The Deutsche Tiernahrung Cremer GmbH are willing to help with solutions. The Deutsche Tiernahrung Cremer GmbH reasons for implementing the customer service Individuality of the customer As there are strong competittions in this market, it has become mandatory to fit the product as close as possible to the expectations of the customers. More rigid market demands With quality management and effective management system, The Deutsche Tiernahrung Cremer GmbH are striving to deliver excellent quality with reasonable price Quickly changing market circumstances Circumstances as new government regulations, new production technologies have to be put in consideration during the purchase of raw materials, production process and also during the selling process. As these circumstances changes almost yearly, the company has to adapt and implement new processes to meet the changes. Shorter life-cycles of product-market relations New products of livestock food are being developed during the whole year, with customers plays a major part in it. Customers make recommendations and makes new product development easier to suit individual customers need.

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COST ACCOUNTING
Full Costing calculation
The Deutsche Tiernahrung GmbH is currently using the activity based costing to calculate the full cost for all round soya powder. They are using this way of calculation to identify the product's true cost of manufacturing overhead. The activity based costing requires to analyse the overheads, and to identify the cost drivers, which is very viable for a pet food manufacturer. The Deutsche Tiernahrung is manufacturing many different products. Therefore, the activity based costing is used to identify the true cost for each product. With the general approach of full costing the overheads would be allocated with a recovery rate over all products, which means that the overheads are covered but not directly related to the product (in general overheads per direct labour hour). Through the activity based costing this is disabled. Only the overheads, which are caused through the production of the product, are considered in the activity based costing. To identify and analyse the indirect cost, the Deutsche Tiernahrung GmbH established cost pools for their cost drivers. Cost drivers for the Deutsche Tiernahrung are the machine operating hours. That include machine operating hours drive labor, maintenance, and power cost during the running machinery activity. Another cost driver is ensuring the quality. The Deutsche Tiernahrungs priority is to provide high quality pet food. Therefore, they make quality inspections (by an independent company) of the raw materials and of the final product to ensure high quality for the customer. The total costs of the pools are allocated to the product by using the cost driver they have identified. The Deutsche Tiernahrung GmbH is using the activity based to identify the true cost of their products, which is enabled through establishing cost drivers and cost pool. Because of this they are able to allocate the overheads precisely to the product. Furthermore, it helps them to set the right price for the products.

Alternative full costing calculation

In our opinion, only Kaizen costing is an alternative for the Deutsche Tiernahrung. It is linked to the total life cycle costing, but in comparison to that, Kaizen focuses especially on the production process. If the Deutsche Tiernahrung GmbH would apply Kaizen then they could decrease the costs which are caused by waste. Therefore, they have to encourage their employees to identify and to solve problems. Kaizen is in our opinion the only logical alternative to the activity based costing, because the target costing is requires bigger numbers of suppliers. But the Deutsche Tiernahrung wants to provide the highest quality as possible; therefore they only have a few suppliers to establish a good business relationship and to create a competitive advantage. Also, the target costing primary focuses on preproduction phase, e.g. design stage and production planning; which would be difficult for a pet food manufacturer such as the Deutsche Tiernahrung GmbH, because of governmental standards, meeting the requirements for their certificates like the HACCP or ISO 9000:2000 and the quality they want to provide. By using the target costing so the probably has to make compromises in relation to quality. 25

Furthermore, the total life cycle costing includes the post production costs, which do not often occur for pet food manufactures. To disable delivering not satisfying products the Deutsche Tiernahrung GmbH takes samples from all products to check the quality of the produced goods. With this method they are ensuring the quality of their products and disable any fault products. Of course, it sometimes can happen that customers are not satisfied with the quality of the product and complain. Then they send their sales force to inspect; but this is very rare. Therefore, it would be futile to use the total life cycle costing for their product because then there would be a small amount of post-production costs.

Factors that influences the sales price

There are many factors which influences the sales price of the product (all round soya powder.) The market value of the raw materials defiantly has a huge impact on the sales price. The Deutsche Tiernahrung wants to provide high quality. Therefore the costs of the raw materials are consequently high. The costs of the raw materials are also the basic for the price setting. They have to adapt the price to the current market value of the raw materials. This is the same as for their competitors. The prices of all companies in the market are very depending on the current market value. In addition to that, factors like availability, environment and economic (natural disasters or financial crisis) are influencing the market value of the raw materials. Furthermore, the competitors also influence the sales price. Through the high competition within the market the Deutsche Tiernahrung must offer the product to an acceptable and competitive price. But there is a huge price fight in market. This means if a competitor is able to purchase the raw materials under the current market value they can offer their products for a cheaper price. The consequence of that could be a decreasing market share for the Deutsche Tiernahrung. To prevent situations like this they make compromises in respect to their profit margin. This will lead to a lower profit but so they prevent that they lose customers and market share. Another factor, which influences the sales price are the transportation costs. The headquarter orders the raw materials and then they distribute them to the production facilities all over Germany. The consequence of that are very high transportation expenses.

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Cost control
Cost control is essential for profitability and for the company to identify their cost, to maximise their profit margins and to increase profits. The Deutsche Tiernahrung GmbH implemented cost controls, because so they are able to react rapidly and effectively to changes in the market. At the pre-production stage the Deutsche Tiernahrung tries to control their costs by buying their raw materials in a high quantity when the current market value is low. If the market price suddenly increases they are not forced to buy the raw materials (or just in a small amount). The Deutsche Tiernahrung is able to that because of their well developed production facilities. Simultaneously they can also decrease the transportation costs by purchasing in big quantities. Furthermore the Deutsche Tiernahrung is using Benchmarking to steadily improve their production process. It helps the company to identify problems or weaknesses. Thereby the company can prevent unnecessary costs and increase their efficiency.

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CONCLUSIONS AND RECOMMENDATIONS

Deutsche Tiernahrung has built up for themself high standard total quality management systems. It reflects on the careful inspection from suppliers selections, checking raw materials, and examining the final products. The whole system are designed, every steps are calculate for the most effective and efficient options. In fact, German Government has the strict detailed regulations about the qualifications regard to all aspects from operation to final consumer product, which is obligated for all animal food manufactures to follow. We can see clearly Deutsche Tiernahrung is devoting its energy to the continuous maintenances and improvements in process and product quality control. It is considered by the company as the pathway for them to reputed sustainable business. However, after go through the whole quality management systems of the company; our group would like to recommend change in term of system perfection. Specifically, the warehouse facilities should receive more attention, since the temperature and moisture change might have impacts on the quality of the raw material. The quality of the inputs can go bad if they are stored in too wet, too hot conditions, especially during springs and summer.

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REFERENCES
1. (2011). Theme book IBMS Semester 4: Supply Chain Management. Enschede: Saxion University of Applied Sciences. 2. Drs. JPM van Maarschalkerwaart (2011). The reader Total Quality management: An introduction. Enschede: Saxion University of Applied Sciences. 3. Jay Heizer, Barry Render Operations Management. (9th ed.). Pearson Higher Education. 4. Deutsche Tiernahrung Creme. Retrieved March 2011, from http://www.deutsche-tiernahrung.de
5. J.Blythe & A. Zimmerman (2005). Business to Business Marketing Management. (Global ed.). Thomson. 6. (2010, May). Pig feed dominates German feed market. AllAboutFeed . Retrieved May 2011, from http://www.allaboutfeed.net/news/

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