Commerciale et Financiére Giuen Holding Credit Ltd.
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Int. Call: +46 (0) 705474830
Goteborgsvagen 1
SE:434 00 Kungsbacka
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Operational Excellence for Wholesale Distributors
By: Howard W. Coleman
Executive Summary
Formula For Success & An Operationally Excellent Profile
? Executive Summary
Do you have a vision and desire to transform your operating
environment into that of an operationally excellent distribution
organization? Do you clearly understand the defining elements that
separate operationally excellent distributors from the rest of the
crowd? Understanding this delineation provides the necessary
benchmarks against which you can compare your organization in order to
achieve a higher level of performance.
? Formula For Success & An Operationally Excellent Profile
The increased competition and greater customer demands characteristic
of the current marketplace mandate that distributors must now become
low cost, high quality service providers in their industry or they
will not survive. Consistent with the latter, many distributors have
tried to maintain strong, long-term relationships with customers by
providing them with high quality products and superior customer
service while at the same time aggressively reducing their unit costs
of distribution.
There are several groups of companies that have either made the shift
to this new, are making the shift, or have been “buried”. The group of
operationally excellent distributors, all who have been transformed,
have been re-engineered for efficiency, productivity, quality of
services, and profitability.
The constant focus of an operationally excellent distributor becomes
working smarter, not faster, and routinely measuring their progress
against a series of rigid standards designed to continuously improve
their performance. By definition, an operationally excellent
distributor must perform at a higher level than the competition to
truly differentiate itself from the crowd. This includes:
? The setting of aggressive corporate goals and supporting strategies
designed to continuously improve performance and provide the necessary
foundation for the success of the enterprise.
Operationally excellent distributors are known for setting, what may
seem like, unrealistic goals. However, accompanying these goals are
detailed action plans and strategies on how to achieve them. Goals
such as cutting turnaround time for processing orders in half or
increasing inventory turns by 100% are commonplace for this group.
? Proactive projections of product demand and business levels are
utilized to anticipate trends and preferences. The operationally
excellent distributor uses this information as a guide in the ultimate
achievement and delivery of the plan, from a market and operational
perspective.
Operationally excellent distributors seek to anticipate trends and
preferences on a proactive basis by providing those higher margin,
value-added products and services that create markets. Market
penetration plans are created annually and are constantly being
monitored to measure progress. The company’s functions provide an
essential role to allow sales to achieve their goals in their chosen
markets. Consequently, operations must be tied into the planning
process so that proper inventory levels and internal process
efficiencies are consistent with anticipated business levels.
? Progressive purchasing, inventory management and control measures
exist in operationally excellent distributors. In this model,
proactive purchasing and inventory managers ask themselves - “how many
should I have”? and “I can’t have what I don’t sell”. The ultimate
goal becomes, maximizing inventory turns and Gross Margin Return on
Inventory Investment (GMROI), - key performance metrics.
Operationally excellent distributors have now shifted the inventory
business model toward proactive management of their inventory. The
operating philosophy in this model is “I can’t have what I don’t
sell”, rather than the traditional method of the paradigm, “you can’t
sell what you don’t have”. GMROI and product ranking by comparative
contribution are the overall driving force in making inventory
investments.
? The role of the Outside Sale Force organization is optimized to take
advantage of a more consultative selling approach that is consistent
among the reps. while benefiting from Sale Force Automation (SFA)
tools. The Inside Sales/Customer Service personnel become a single
point of customer and sales person contact without wasting significant
time “checking and researching” of orders.
? Management roles are optimized to allow management to spend less
time micro managing and more time directing and leading the efforts of
a motivated staff.
? Operationally excellent distributors develop strategic relationships
with suppliers designed to reduce overall costs of the supply channel
by utilizing EDI capabilities and even Vendor Managed Inventory (VMI)
to their fullest extent.
? Performance metrics are created and promoted to motivate staff
toward the effort of reducing costs and providing superior customer
service.
? Streamlined workflow processes are the determining factor in the
ultimate success in exceeding the expectations of customers. All
internal disciplines within the operation from order entry,
purchasing, warehouse picking, packing, and delivery, to invoicing and
returns, etc., are re-engineered to reduce the company’s unit costs of
distribution.
As distributors try to improve their processes with technology, they
find themselves working with a set of policies and procedures that
were designed for the old model, not only for inventory management,
but for most of their internal operating work flow processes. In
implementing new technology, distributors seeking to be operationally
excellent first seek to take a fresh look at their processes so as to
identify bottlenecks and redundant activities. This enables them to
redesign workflow to enable the new technology to function properly.
They re-engineer all key work flow processes and develop appropriate
decision points, internal controls and management reports relating to
the creation of customer orders through shipment of goods. The
objective is to maximize the productivity of all processes, eliminate
bottlenecks, improve inventory management capabilities and improve
overall systems utilization. This reengineering effort will support
each application so that the enterprise does not carry forward “its
old ways”.
? In conjunction with the streamlining activities, state-of-the-art
technology is incorporated to take advantage of radio frequency and
advanced bar coding systems for automated storage and distribution
capabilities.
Once processes have been re-engineered to support the new technology,
the operationally excellent distributor is able to bring a host of new
technologies to bear. Major tools used by operationally excellent
distributors include:
? Automated Picking
Effective utilization of radio frequency (RF) and bar code scanning
technology allows for truly “paperless” warehousing and distribution
capabilities. RF allows the computer system to send picking
instructions directly to designated pickers through their hand-held
devices. The system directs what orders to pick, the sequence in which
to pick them, the storage locations to pick the product from, and
ensures correct picking by verifying that the bar code identification
specified matches the actual item picked.
Companies who have successfully integrated this capability have
reported dramatic improvements in overall order accuracy, elimination
of shipments not billed, an ability to hire less skilled and less
expensive picking labor, dramatic improvements in the time necessary
to pick orders, and elimination of the order checking functions.
? Packing, Staging, Loading & Logistics Management
The use of computer generated shipping routes, direct staging and
loading manifests are critical to the success of the operation.
Loading manifests identify all packages/cartons with their assigned
carrier/delivery vehicle, carrier staging location, and loading
sequence. This dramatically reduces the amount of effort required.
Consequently, trucks leave earlier while the loading staff can be
reduced.
Operationally excellent distributors also track and analyze their
actual costs per delivery to more adequately allocate delivery costs
to specific customers. (For example, customers that routinely order
small quantities of low-margin products or have inefficient receiving
docks causing wait time, or are in isolated geographic regions are all
scrutinized to ensure proper cost allocation in the distributors
overall business mix).
? Customer Invoice Processing
Paperless warehousing and distribution allows for the elimination of
office copies of all orders. Pickers confirm ship quantities as they
scan the product. As a result, customers are billed only for the
picker’s actual pick quantity. This virtually eliminates billing
mistakes, eliminates the need to archive paper copies of orders, and
allows for same day billing of product shipped.
In the paperless environment, there is no need for billing data entry,
proofs of deliveries, credit expediting, and billing error correction.
Accordingly, distributors that have implemented paperless environments
are significantly reducing invoicing and filing staff.
? Product Receipt, Storage & Accounts Payable
All products are scanned immediately at point of receipt. The system
immediately knows what’s in the building. All internal receiving
documents can be eliminated. Backorders are reduced, inventory turns
improved, and paying for product that has not been received –
eliminated.
Arduous tasks performed by the accounts payable staff such as
obtaining paperwork from the receiving department and researching
internal support documents is eliminated. Consequently, operationally
excellent distributors have successfully been able to reduce receiving
and A/P staff headcount.
? Inventory Accuracy & Cycle Counting
Improvements in the recording, tracking, and controlling of workflow
processes allow for a greater level of inventory accuracy.
Operationally excellent distributors no longer perform traditional
physical inventory counting. Discrepancies of either count or storage
location uncovered during picking or stock put-away activities
automatically generate a cycle count check in the system. This allows
errors to be corrected on a daily basis, substantially improving
inventory accuracy, improving cash flow and inventory turns. When used
effectively, operationally excellent distributors report 98%+
inventory accuracy levels.
? Supply Chain Management/Purchasing
Operationally excellent distributors are utilizing supply chain
management techniques to improve their strategic relationship with
their suppliers. EDI is utilized to increase efficiency and lower the
cost of ordering, price changing, receiving, invoicing, and payment.
? Insides Sales/Customer Service
The role of the Inside Sales person is evolving. Customers
increasingly want their customer service person to provide a single
point of contact for all questions that they may have, including:
product use/application, order status, credit, returns, billing,
problem solving, complaint handling, and consultative selling. In
order for this to be effective, the operationally excellent
distributor must ensure that the inside sales/customer service staff
is “plugged in” to the company’s strategy and tactics like never
before.
In poorly managed environments, up to 50% of their time can be spent
correcting mistakes and pacifying customers. In an operationally
excellent environment, 90% of the time Inside Sales/Customer Service
staff can be performing more value-added customer service.
? Optimization of Management’s Roles
Historically, management at a distributor was primarily focused on
micro-managing line work, creating customer service exceptions (i.e.;
delivery, price, credit, etc.), excusing service blunders, looking for
“superstar” personnel who had the ability to operate in a hectic
environment, and worrying about meeting the increasing service demands
of the customer. In an operationally excellent distributor, management
can now focus on more pro-actively meeting with customers and vendors,
coaching to solve problems, leading, planning, staffing, and
developing more consistent results among staff personnel.
? Utilization of Performance Metrics
Activity based costing and performance metrics is now widely used as
part of the continuous improvement process necessary to reduce costs
and improve customer service. In an operationally excellent
distributor, formal measurement systems exist to measure inventory
accuracy, order fill-rates, and order processing costs. This allows
management to now consistently focus on improvement of the operation’s
effectiveness.
MCA Associates – Who We Are
Since1986, we have worked with over 125 small entrepreneurial to
middle market clients. We counsel management on issues related to
business process re-engineering, purchasing, and inventory and supply
chain management, sales development and revenue generation, and
organizational assessment and development. We provide value-added and
continuous improvement solutions that result in measurable
improvements in revenues, cost reduction, quality, and productivity.
Our clients are distributors, manufacturers, and service providers.
Typical indicators that show there might be a need for our services
include:
? lagging sales revenues
? cash flow issues
? too much inventory, or too little inventory to support service-to-
customers
? high warehouse, distribution, manufacturing labor costs and poor
productivity
? poor customer service
? poor/weak organizational infrastructure
? insufficient performance metrics to monitor company and personnel
performance
? old or archaic information technology and computer systems.
? insufficient R.O.I. on new technologies and computer systems
.
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