Supply Chain for Tea Manufacturing

Supply Chain for Tea Manufacturing

Problem: Management of complex supply chain in the tea factory.

Alternative: Engagement of third party distributors.

Rationale: Third-party distributors will reduce the workload of the firm and the supply chain will be managed efficiently.

Answer 2

Problem: Contrasting and comparing the challenges of Fteh and bottled Goteh. The main problem is the decrease in glass bottles in the factory.

Alternative: The firm should allow third-party distributors should manage the supply chain and increase the production of glass bottles.

Rationale: The firm will be having enough glass bottles in the factory in case there are unreturned glass bottles from wholesalers and retailers. There will be no production stoppage.

In the beverage industry, there are two types of packaging; Return Glass Bottle (RGB) and one-way product (OWP). Both Fteh and Goteh have some products that are packed in a glass bottle. The company faces a challenge in managing the glass bottles. Forward buying and errors in forecasting may result in a decrease in glass bottles in the factory. The company will be requiring the bottles in the hands of retailers and wholesalers to repackage the products. The firm does not use third party distribution for OWP.  The reason being the profit margin is low, and it will be economically infeasible to use a third-party distributor. Besides, the retail stores occasionally make promotion discounts, and that means the profit made by the retailer will be minimal. The promotional done by retailers increase short-term demand, and the firm should also increase its production.  The company may fail to accurately forecast demand leading to a shortage or surplus of the products. A lack of the commodity may have the effect of reducing the sales revenue of the firm, whereas excess inventories attract the holding costs. The traditional outlets such as groceries do not conduct a promotional campaign; only new outlets do them.  The firm primarily markets Goteh through small shoppers and supermarkets, whereas Fteh is sold through new outlets. The firm will face a challenge in predicting the demand if new outlets conduct a promotional campaign. The target market for Goteh entails all ages, while the Fteh target market mainly consists of youth.  The firm may have difficulty in distributing the product to reach the target market.

Answer 3

Problem: Increase in temporary demand

Alternative: The firm should increase its production when there is an anticipated shortage of the product.

Rationale: The firm can predict factors that lead to increased demand such as promotional programs, price increase and different occasions. The business will increase its sales revenue.

An increase in temporary demand is caused by promotional programs, the intention to increase the price and different celebrations. The retailers may have promotional programs geared to increase the sales revenue of the firm. For example, the retailer may have an option to buy two get three or prize draw. The promotional campaign raises market demand among consumers. Tehindo may have the intention of increasing the prices for its products. In such a case, they give two weeks’ notice before the price hike. The retailers and wholesalers are prompted to purchase the product before the price increase.  The wholesaler may take advantage of purchasing the products at a lower price and later to resell them at a higher price; hence, they make a high-profit margin. During festivals or celebrations such as New Year and religious festivities, there is an increase in demand. The retailers and wholesalers increase their order quantity in anticipation of increased demand from consumers. The firm should plan to meet the temporary demand increase to maximize their revenues.

Answer 4

Problem: Introduction of a new variety of Fruity tea.

Alternative: The firm should not introduce a new product.

Rationale: Introduction will add more constraints to the firm, such as added time for setting machine apparatus, difficulty in forecasting and challenges in inventory control.

Discussion in the second meeting concerned the product variety for fruity tea. One of the options would be to decrease the product variant. Decreasing product variants would reduce the time wasted in finding the alternative product. In this case, introducing a new product would require additional time for setting apparatus and cleaning the mixing tank. Technicalities and logistics problems will reduce if there is no introduction to the new product. There will be less difficulty in controlling the finished goods and raw materials if the product range is decreased. Demand forecasting will be much easier if the number of product variants is reduced. The firm will also take time to introduce the new product to the consumers. Therefore, the firm should not introduce a new product into the market since it will lead to other problems such as time wastage, logistic problems, and challenges in demand forecasting.

Answer 5

Problem: Effects of information distortion on the supply chain, which leads to an increase in temporary demand.

Alternative solution: The firm should reduce the period of notice to less than two weeks.

Rationale: Retailers and wholesalers will not have time to increase their purchase orders.

Information distortion is a feature that can affect the supply chain. Generally, information distortion tends to increase the demand unpredictability, moving upstream in the supply chain. The term bullwhip effect is used to define the process (Min, n.d.). Based on the case study, the bullwhip effect can take place for Fteh and Goteh, but with different intensity. The reason prompting this can be an intention to increase the price by the firm, which causes the retailers and wholesalers to increase the orders they demand. Another reason can be errors in demand forecasting, which results in either surplus inventories or scarcities of the products. Also, in the case of different festivities or celebrations, it causes an increase in demand.

Information distortion can be reduced by adopting several measures. The company should review the policy on a two-week notice before the price increase. The extended period makes retailers and wholesalers increase their purchases. The firm should reduce the period to make it difficult for wholesalers and retailers to increase their orders and will decrease information distortion. Besides, communication should be shared among the players in the supply chain, as well as reduce the range of products.

Answer 6

Vertical Integration

When different firms at different stages of production combine are referred to as vertical integration (Baker, 2011). In the case study, the tea firm having plantation of tea provides an excellent example of vertical integration.

Advantages of Vertical Integration

• There are economies of scale, such as financial economics and risk-bearing economies. Economies of scale lead to lower costs, and benefits may be passed to the consumer by lowering product prices.
• The firm is assured of constant supply and will not be affected by outside suppliers demanding higher prices.
• There may be an increased production due to improved technology resulting from vertical integration.

Disadvantages of vertical integration

• The merged firm may create a barrier of entry. The firm makes it difficult for other firms trying to enter the industry.
• There may be challenges of communication and coordination; this will result in inefficiency of the merged firm.
• The merged firm may have monopoly powers. A monopoly may charge high prices to consumers.

Outsourcing

Outsourcing occurs when a firm delegates parts of tasks to be done by an independent external agent (Milecová, Grznár & Szabo, 2010). Outsourcing has some advantages and disadvantages, as highlighted below.

Advantages of Outsourcing

• The firm will be able to get experts in specific fields. Experts will improve the performance of the business.
• Tasks will be accomplished quickly if the firm outsources; this will save time for the firm to concentrate on other tasks.
• The use of experts will reduce risks. Experts will be able to plan and mitigate potential risks.

Disadvantages of Outsourcing

• The firm loses some control of outsourced activity. The firm loses control of how some tasks are performed.
• There are costs associated with outsourcing. The firm may be required to adhere to contractual agreements; otherwise, it may attract some penalties and fines.
• Business secrets are shared with external agencies.  In case the external agency leaks the business secrets, it will be a disadvantage to the firm.