Bonded Area Supply Chain Management and EOQ Model Empirical Study

Bonded Area Supply Chain Management and EOQ Model Empirical Study MAO Yuzhong, YANG Guangming School of Economics and Management, Zhejiang University of Science and Technology, Hangzhou, P.R.China, 30023 3574393@zj65.com Abstract China's bonded areas are facing the severe challenges brought about by the international and domestic changes in the economic situation, But from the perspective of the supply chain, the operation of enterprises in Bonded Zone is not isolated, but the member of the supply chain, the existing problem is the supply chain management issues. This paper on the issue proposes the application of supply chain management in bonded area, and establishes mechanism and model of supply chain management, and analyzes empirically EOQ model associated with enterprises of the bonded area, and discusses the new ideas of the industrial base construction under the new situation. Key words Bonded Areas, Supply Chain, Model, EOQ Introduction China's bonded areas are facing the severe challenges brought about by the international and domestic changes in the economic situation. Under the WTO framework, As China's overall level of tariffs gradually reduce, Outside the bonded area and the district will gradually reduce the tariff gap, This relatively weaken the Free Trade Zone "bonded" advantage. Along with the right to operate the national trade has gradually liberalized, the advantage of bonded areas formed by the special policies of international trade will eventually disappear. Along with the principle of national treatment, the principle of transparency and market access for the gradual implementation, Bonded Area of the existing policy framework and mode of operation will also face an unprecedented impact on. In addition, there are many issues that must be resolved on in the development process of the bonded area. For example, the existing policy in the system still exist incomplete, lack of co-ordination and not in place. The standardization of policies and the rule of law is not high degree. Management system is to be further rationalized. Qualitative and positioning of the bonded area must be unified understanding. Logistics technology and information technology is low to some degree. "islands of information" is formed among of enterprises, warehousing enterprises, processing enterprises and international trade enterprises in Bonded Zone apply different classification EDI subsystem, So the enterprises in Bonded Zone can not be at the same time operating enterprise storage logistics and processing business, so many functional restrictions. Such as R & D, International maritime transport services, International Equipment Leasing, Cargo agents transport, Offshore finance, International express business. This in the bonded zone for those who wish to conduct research and development, contracting, purchasing, simple processing, storage, distribution, distribution, and other business package for multinational corporations, Greatly restricted areas and its investment scale. Case in Ningbo Free Trade Zone, Non-bonded occupy a large proportion of business, Only 74.6 percent bonded warehouse, a waste of resources in many areas. For problems of Bonded Zone, at present domestic research is "restructuring", the interaction of bonded zone and the harbor may be the main content. After enter WTO, the situation of China's foreign trade and new changes, the rapid development of foreign trade, global manufacturing further transfer to China, the State set up export processing zones in order to promote the development of processing trade. At the same time, the development of the manufacturing impulses industry chain centralization and the rapid growth of the supply chain. External pressure and the internal motivation promote local governments, enterprises, and scholars to explore how to achieve the transformation and upgrading of the bonded area. 73

Some domestic scholars, such as Cheng Siwei, conducted a systematic study for the restructuring of China s bonder areas. They put forward the goal of restructuring mode: inside and outside bonded areas, appropriate decontrolled; Logistics Mainly, Integrated support; bonded area and harbor cooperation, coordinated development, unified leadership. Domestic research, first, in the content has a certain degree of convergence, most relate to the concept of free economic zones, type, features, objectives, and have a strong bias towards the status description. Second, most of the research methods of qualitative analysis are commonly used as a typical case study, a comparative analysis into a free economic zone model. This approach lies in the inadequacy of the lack of quantitative analysis and empirical testing. Third, in the research and operational aspects of the practice of China's bonded areas still a distance, not from the world of the success of a free economic zone in summing up experiences and lessons for China's bonded areas of theoretical study and practical reference. Research on the problem of foreign free trade zone, bonded Zone has abroad on a number of different titles, for example, Free trade zone, export processing zones, free port, Earlier Development, Notable results. Management practices mature, the first in the United Kingdom in 947 Shannon on the creation of a free trade zone, Taiwan's 956 Kaohsiung Export Processing Zone, South Korea in 970 developed Masan free export zone. They are earlier than 40 years, and have no such problems. The main reason is the depth in the academic aspects of the research, such as the theory of comparative advantage, international capital theory, theory of the advantage of location, growth pole theory, the product life cycle theory. Wall(976) Ping(979) Poi lack(98) Jayewardene(983) Spinager(984) Sklair(986) and Rondinelli(987) made a lot of qualitative analysis. Wall (984) on the Korean Export Processing Zone research, Leinbach (982), Wall (987) on Malaysia on the export processing zones, Kumar (987) of India on the export processing zones and Wideman (976) on the Philippine Export Processing Zone study, they more emphasized on empirical case studies, and institutional factors included in the scope of the study. Vittal (977) and Takeo (978) on the many parts of the export processing zones made the overall analysis, analysis involved in the Asian countries and other regions of the world (such as Egypt, Peru, Brazil, Mexico, Etc.). Thoman (956) discussed the free port and bonded warehouse on economic problems, but lack of contact with the supply chain of theoretical research, and to focus on international trade. Bonded Area of the reasons of the problem is the lack of local businesses, affected by international markets. However, from the supply chain perspective, the bonded area is not isolated in the operation of enterprises, but the number of the supply chain, is the supply chain management issues. Many of the problems in the bonded area are relate to no systematic theoretical study, in the state of "feeling river stones". The theoretical research lags behind, there are many problems, the Government became a fire-fighting team, enterprises fight the battle alone, and the bonded area has not played advantage of the region. For instance, the author have investigated the Ningbo Bonded Zone, discovered that in the area of non-bonded logistics business may replace bonded business situation. China explore the market economy in the era of the lack of complete freedom competitive environment, the internal and external business environment there is a big difference, such as privately-run enterprises and state-owned enterprises, foreign-funded and domestic-funded. We can not use foreign experience to solve problems with Chinese characteristics, it is necessary to conduct further research into the bonded area. 2 Supply chain management Supply chain management has become an important means of a core competitiveness of the construction. According to Supply Chain Management Association in USA, supply chain management includes procurement, outsourcing, the process of transformation, such as planning and management of all activities and all logistics management activities. More importantly, it also includes a partnership with the channels of coordination and cooperation, involved vendors, brokers, third-party service providers and customers. Changes in the world have brought challenges fro supply chain management, 732

third party logistics, transport, storage, international logistics, business logistics; enterprises must reform itself to meet the challenge. This is the supply chain management of the charm. To implement Supply chain management, we can increase the whole supply chain visibility, and seek to achieve the good combination of information to avoid distortion caused by the "bullwhip effect,, thus lower the cost of the entire supply chain. Through the supply chain management system plans, enterprise can obtain accurate plans, this plan will inform vendors ahead of time, and suppliers can reduce their own safety stock, in accordance with the business plan Availability. Then the supplier's cost reduced accordingly, enterprises also benefit from it, the cost of the entire industry decreased. Conversely, if the enterprise can not be reached information-sharing, it may cause of this situation: enterprises in accordance with the planned production, a raw material that can not suddenly arrived, business has been according to plan scheduling, and other materials also occupied, it will be a waste of enterprise resource, industries resources and then social resources. Supply chain management is through coordination, and improves the visibility of the entire supply chain; reduces costs; achieves a win-win situation for all enterprises. Bonded Supply chain management is a supply chain relationship formed among the enterprises in bonded areas, and by the flow of information and business flow, achieving the entire supply chain lowest cost, most efficient. On the domestic supply chain management study is the product supply chain, supply chain with a particular product or project-related supply chain (such as the automotive supply chain). Based on product supply chain of the supply chain is from product-specific customer needs by pulling the entire supply chain operation of the whole process of system management. Use of information technology is to improve the operation of supply chain performance, the development of new products and improve product quality. In the foreign-funded enterprises have some applications, such as Wal-Mart and other stores. From the point of view of supply chain management is the main issue of the bonded area: Bonded supply chain management synergies, such as the "port interaction area," transportation and warehousing against the backdrop of the problem, local and coordination problems. Bonded supply chain management information and decision-making problems, such as non-bonded warehousing, information asymmetries. Supply chain bonded has a lot of the content of the study, but can be summarized in four main areas: ()Restructure enterprise supply business process, in order to fully meet the needs of customers. Agile Manufacturing in supply chain management is to achieve an important form of customization, the core of the concept is to change the traditional manufacturing process, the personality of customers will be most reflected the fast. Through inventory control, distribution strategy, supply contracts, product design achieve. (2) In the geographical space to re-plan the customer and vendor of the enterprise, in order to fully meet customer needs, and reduce operating costs. Here, we must consider the supply and sale of factory plant because of its fast and accurate production system to meet the needs of customers, and strengthen enterprise with suppliers and vendors of communication and collaboration, and lower transport and storage costs play an important role. Distribution network configuration, consider several production plants to a group of geographically dispersed product retailers. The current storage configuration is considered to be unreasonable, managers hope to re-design or re-distribution network. This may arise from a change in the demand pattern or some of the existing warehouse the end of the lease. In addition, the demand pattern changes may need to change the output of factories, and the choice of new suppliers, as well as the distribution of goods in the network flow. Managers should be how to choose the location and storage capacity, identify each vendor production quantities, and set transport facilities flow, including the production plant to warehouse, warehouse to retailers, to ensure that these decisions can be the smallest of all production, inventory and transportation costs and the level of service necessary to meet requirements. This is a complex optimization problems, the need for advanced technology and methods to solve. (3) In the supply chain the logistics resources of all manufacturers must be integrated and coordination, so that they can operate as a whole. Bonded Zone enterprises often have a lot of supply 733

manufacturers, in order to satisfy a specific user goal, we must make the logistics of all manufacturers unified integration and coordination, so that they can operate as a whole. This is an important way in supply chain management. (4) Bonded supply chain management exist many risks, such as the "green threat," and demands of the supply chain bonded green. International "anti-dumping", require timely response and emergency action. 3 Bonded Area supply chain management model and empirical analysis To address the above problem, the approach of quantitative research is taken in the supply chain modeling. At present, China's bonded supply chain management is the key to quantitative analysis, the lack of models. To meet the above-mentioned four aspects on request, classification model have time model, the space model, collaborative model, the risk model. In the framework of the model, collaborative model is a strategic level; time model, model is tactical level; green model is the risk model. Collaborative model consider taking in input-output model, the model is the main model of collaborative study, it has been applied to the macro-economic coordination, and it has mature application for proportional relationship and comprehensive balance. Enterprises in the bonded supply chain, production and consumption are also complex proportional relationships; this model can solve this complex relationship to achieve the sharing of resources and the entire supply chain to reduce the total cost. Time model have EOQ the best inventory management model, ABC management model. Space model have linear programming model, transport models, location option model. Risk Model have mainly early-warning model, Monte Carlo model. When we decided to use quantitative methods to solve the problem of bonded supply chain management, the various variables and the relationship between all the data are used by the symbols of model expression of interpretations. Such expression may be mathematical model or graphical model. In this model, not only goals, variables and the relationship between the data must use mathematical forms, and model itself must reflect the actual impact as to the changes of input factors. The model must be solvable; it is reasonably easy to deal with. In order to use such an expression equation model, it may be necessary to make reasonable assumptions in order to limit the scope of the problem. Complex issues need to be simplified so that the model expressions may be brief. In such circumstances we must do pre-analysis of the data to exclude those extra variables which can be neglected and without affecting for solving the problem. Coordination of inventory is an important component of the supply chain management, also is the basis of the analysis and model. [7] Now time model of EOQ model as an example, to quote an enterprise of the supply chain management practice in the Ningbo Bonded Zone, empirical models, we conduct an empirical study. Model is derived as follows: Hypothesize: Free Trade Zone supply chain upstream and downstream firms every t, the time point of i,inventory added, the total cost when i: Total cost= Purchase cost + Stocks cost TC(t, i)= ( D Q ) K + ( Q 2 ) V R () The following is the various parameters: D is total demand of one year, Q is order batch quantity, K is unit order cost, 734

V is storage unit value, R is storage rates %. Assumption t, i continuous change, the optimal procurement and inventory quantities is: Q* EOQ = 2DK VR (2) Supply degree = D Q =N (3) Supply cycle= 365(days) N (4) Q* i : Supply chain upstream suppliers for the best stocks, on the needs of downstream manufacturers for the best procurement volume. Take the enterprise in Ningbo bonded area as an example, downstream manufacturers, the demand for procurement of 8,000 tons, the cost of each purchase order for 2,000 Yuan, I storage rate of 8 per cent, the value of V storage products unit for 00 Yuan. We can deduce downstream manufacturers for the best procurement quantities and upstream suppliers Availability cycle. Make data into the above formula (2)~(4), the solution results: Q* EOQ = 2 8000 2000 00 8% =2000(tones) Supply times = 8000 2000 =4 (times) Supply cycle= 365 4 9(days) Make data into the above formula (), the solution results: TC(t, i)=(8000/2000) 2000+(2000/2) 00 8%=6000 (Yuan) Order Times Q The 2007 survey results as shown in Table 2 below, the actual purchase orders is 3 times. Table 2007 survey results Purchase Storage Total Changes Changes Per cent (%) 2,000 32,320 34,320 8,240 53% 2 4,000 6,60 20,60 4,080 20% 3 6,000 0,773 6,773 693 4% 4 8,000 8,080 6,080 - - 5 0,000 6,464 6,464 384 2% 6 2,000 5,387 7,387,307 8% 7 4,000 4,67 8,67 2,537 4% 8 6,000 4,040 20,040 3,960 20% 9 8,000 3,59 2,59 5,5 26% 735

0 20,000 3,232 23,232 7,52 3% 22,000 2,938 24,938 8,858 36% 2 24,000 2,693 26,693 0,63 40% 3 26,000 2,486 28,486 2,406 44% 4 28,000 2,309 30,309 4,229 47% 5 30,000 2,55 32,55 6,075 50% 6 32,000 2,020 34,020 7,940 53% 7 34,000,90 35,90 9,82 55% 8 36,000,796 37,796 2,76 57% 9 38,000,70 39,70 23,62 59% 20 40,000,66 4,66 25,536 6% 2 42,000,539 43,539 27,459 63% 22 44,000,469 45,469 29,389 65% 23 46,000,405 47,405 3,325 66% 24 48,000,347 49,347 33,267 67% 25 50,000,293 5,293 35,23 69% 26 52,000,243 53,243 37,63 70% 27 54,000,97 55,97 39,7 7% 28 56,000,54 57,54 4,074 72% 29 58,000,4 59,4 43,034 73% 30 60,000,077 6,077 44,997 74% 3 62,000,043 63,043 46,963 74% Based on the above results procurement costs, storage costs and the total cost of the relationship of the statistics, we draw a figure as shown in Figure, choosing some valuable 20 data. 45,000 t s o c 40,000 35,000 30,000 25,000 20,000 5,000 Purchase Storage Total 0,000 5,000 Changes - 4 7 0 3 6 9 Order times Figure purchase cost, storage cost and total cost relationship 4. Conclusion 736

Empirical analysis shows that the model and the survey results are consistent, the lowest total cost is purchase 4 times, it occupy.8 million total liquidity. Procurement, and 6 times the cost is basically the same (An increase of approximately 53%, approximately.02 million Yuan). Bonded Zone enterprises have often imported duty-free advantage of the bonded area, ignored inventory management, a one-time procurement of imports, resulting in high inventory costs. Through this model analysis, we can see that supply chain management of the enterprise is of great significance, and if we do not attach importance to the bonded enterprise supply chain management, will enable the advantage into the inferior, the establishment and application of the mode of the bonded area will help resolve the current existence of the many problems. References []Wang zhaofeng,supply Chain Management, Electronics Industry Publishing House,2006,2.p02~03 [2]Gao haixiang, China's bonded areas in transition mode, Shanghai University of Finance and Economics Press,2006,7.P34~37 [3] (United States) David Xinyi, Design and supply chain management,2007,.p9 [4]Zhong jian, World special economy areas on the development model, China's economy Press,2006,8.p204~205 [5] (United States) Jeremy Shapiro, Supply Modeling, CITIC Press,2007,.P23 [6]Zheng hong, Ningbo Bonded Zone Development of logistics warehousing operations, Logistics papers,2007,2.p67~68 [7]Huang xiaoyuan, And optimization of supply chain model,2004,2.p98~99 737