Supply Chain Case Study

Drop Box #2: Global Supply Chain Management and Planning

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Plexet is a mid-sized manufacturing firm located in Auckland, New Zealand. The company produces a range of plastic containers that includes their flagship product range, Goodseal. The Goodseal brand includes a range of plastic food storage containers, designed to be sold to retailers and grocery stores for home use. The containers are sold in 3 and 6 packs, in three different sizes: 0.25L, 0.5L and 1L. They are typically marketed to consumers for food storage in the refrigerator or freezer. Currently, Plexet has achieved a 9 percent annual sales growth over the past five years. Within the manufacturing plant, the company is running three shifts at full capacity, although the plastic molding equipment is running at only 58 percent of its optimal production capacity. Production levels fluctuate frequently, and Plexet adjusts its labour schedule around their forecasted sales demands. The sales manager is concerned about sluggish sales over the past six months, and is aware that manufacturing targets are based on the recent sales forecasts. Having an excess of product is of concern with Plexet management. Therefore, increasing production is not a strategy considered to help boost quarterly sales targets. Instead, Plexet is considering offering a discount to their suppliers, as well as adopting a new marketing strategy that will offer consumers coupons to buy one Goodseal product and receive a 3 pack of 1L containers free.

Plexet do not receive as many orders for the 1L Goodseal container from their suppliers as they do for other container sizes. As a result, Plexet has decided to discontinue the 1L product and focus manufacturing efforts on the more popular sizes. This will enable the manufacturing plant to replace the 1L molds with 0.25L and .05L components. This is may help alleviate the low 58 percent rate of production because there will be more equipment to handle the production of the two remaining product lines. Managers believe this will increase their production levels. The coupon strategy is designed to help move some of the obsolete 1L product from their inventory, in addition to retaining consumer loyalty with the smaller sized products. The manufacturer will implement the sales and production strategies over the next fiscal year.

What is promising for Plexet is a recent order from Chinex, an exporting agent that sells to China. The agreement stipulates that Plexet will ship 25,000 cases of the entire Goodseal line to Chinex. This could not have come at a better time, because the order will be placed in time to meet Plexet’s quarterly sales target. To expedite the sale, Chinex has been offered a significant discount. Chinex has agreed to send payment within seven business days, and pay by letter of credit from a reputable Australian bank.

Meanwhile, back at the retail store

Plexet has a reliable supplier relationship with a large retail chain, KiwiMart (KM). The head of purchasing at KM acquired 4000 cases of containers this quarter at a 4 percent discount from Plexet, but has sold only 1800 over the last two quarters. She decided that KM’s in regions outside of Auckland would also benefit from the discounted price, and has sold 1800 to them. In addition, she has sold 400 cases to a wholesaler at cost, with a negotiated deal to buy them back at a 3 percent premium within 90 days if KM needed the supply. This has helped the other KM’s throughout the country, as well as solved any inventory issues with the Auckland KM. The plan is for the Auckland KM to discount 1000 cases for a special in-store promotion.

Soon after the deal with Plexet had been negotiated, Chinex contacted the head of KM’s purchasing department. They offered a significant 7 percent discount on 5000 cases of assorted Goodseal products. The deal was far too good to be ignored and KM accepted the deal. The sales department contacted Plexet and cancelled their next three orders. KM received the Chinex products over a month late.

Unfortunately, the purchasing manager was unaware of the situation on the ground in the local KM. The shelves holding the Goodseal line had an ample supply of the 1L six packs, but no other size was on the shelf. Worse yet, Plexet’s competitors were stocked next to the Goodseal line, and had a full line of product sizes and quantities per pack.

What’s the problem?

Plexet is under the assumption that they have a sales crisis. Forecasted demands are higher than their current rate of sales. They have decided to help resolve this by adjusting their product line, and adapting their production line to manufacture more products that sell faster. Offering coupons would help boost sales and consumer loyalty. The purchasing department at KM believes they have addressed a potential inventory crisis, are secure in the amount of supply they have acquired, and have perhaps even boosted their bottom line through the recent acquisition of the cheaper Goodseal product from Chinex.

Case Study Discussion Questions

1 a) What is wrong with the Current KiwiMart supply and inventory system?

b) Explain how conducting an organized and systematic sourcing process would benefit the purchasing department at KiwiMart (KM).

2. What form of partnership would help improve both KM and Plexet’s supply chains?

3. How would Plexet benefit from adopting a JIT (Just in Time) approach to production?

4. Explain the advantages KM and Plexet would receive from implementing an inventory management system.

 

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