Introduction
Supply chain management is a relevant part of an organization’s operations (Khosrowpour, 2002).W’UP Bottlery follows the traditional way of distribution whereby distributors place their orders with their immediate upstream suppliers. This traditional way of doing things has proved ineffective as well as inefficient due to the resultant stock outs and overstocking. Both situations lead to increased inventory costs. Stock-outs increase ordering costs and lead to lost sales while overstocking increases the holding costs (Richards, n.d). There is a need for the company to establish the optimum stock levels that would eliminate both stock-outs as well as overstock to reduce the inventory costs.
Case Study Summary
According to Supply-chain Management at W’UP Bottlery (A) by Richards Saeeka, the company faces the challenge of optimally determining the market demand of its products due to its physical setup as well as the traditional system of its supply chain management. The company’s plants are sparsely distributed, which complicates the distribution network. It has six levels in the supply chain which creates high bureaucracy making it impossible to access first-hand information about the actual retail demand. There is lack of a comprehensive distribution channel from the producer to the final consumer, as each supply chain unit can only arbitrarily place orders to the upstream supplier. Rajat Mehra, the supply chain management director, sees the concept of vendor-managed-inventory (VMI) as the solution to this problem since it enables the upstream entities in the supply chain to access downstream demand information electronically. Inventory costs may significantly contribute to operation costs (Richards, n.d). The existing challenge however that is the area lacks sufficient electronic resources, and the company largely depends on the forward and reverse logistics for its sales.
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70 percent of the company’s sales come from the returnable glass bottles (RGBs) while 30 percent comes from the one-way packs (OWP). RGBs have an average shelf-life of six months, and OWPs have a shelf-life ranging from 8 to 12 weeks. Both lines come in two sizes of 200 mm and 300mm packs, and they each have 12 stock keeping units (SKUs). The company also manufactures and sells five other flavors apart from Coca-cola. These products are sold through six distribution channels that include Eating and drinking, Groceries, Cinema and multiplexes, Modern trade, At work and Other (Richards, n.d).
The company’s plant is among the four that serve the Uttar Pradesh market which has 800 independent Coca-cola distributors and 250,000 independent retail outlets. It had a total of three depots. Direct distribution from the company’s three depots to retail outlets was done using company-owned trucks and accounted for 20% of the total sales. On average, a truck carried between 500 and 1000 cases. Indirect distribution accounted for 80 percent of the total sales and products followed this channel: from the plant depots to super-distributors to sub-distributors, to retail dealers and finally to retail outlets. Miscellaneous sales were made to large stores and supermarkets (Richards, n.d).
Typically, the company sold to independent distributors who serve the retail outlets that then sold to the final consumer. The company depots used variations of the stock base policy to stock products. Independent distributors and retailers ordered arbitrarily through instincts while consumer demands varied throughout the year. Normally, retailers carried a three-day inventory and purchased their stock on a daily basis depending on what was available, the season as well as the weather conditions, putting into account the prevailing situation. Most distributors did not have enough capital to buy large stocks and so got supplied by larger distributors. The company only supplied to distributors lying within a 250-KM radius from the company warehouses. It used batch processing in a cyclical schedule in manufacturing its products only during the day. This is one of the production methods adopted by manufacturing companies (Riezebos, 2001).
The company gauges its performance on the average trips made by the bottles per year. Its average glass velocity ranges from four to five turns per year and the management aim at improving this. Sales of soft drinks highly fluctuate throughout the year with most of it occurring in March, April, May and June. Investment in glass bottles accounts for significant working capital. The bottles are purchased based on sales forecasts, allowance for breakage, improvements in tripping as well as the number of bottles in circulation. The company wants to optimize its operations through increasing its service level and at the same time reduce its investments in glasses. May presents the month of focus since it is the peak (Richards, n.d).
Mehra pushed on with the idea of VMI and brainstormed on it with his team members. They shared this idea with several distributors and the Coca-cola sales people. Responses from both groups were discouraging. Distributors viewed the idea with suspicion, thinking that this was a way to take their customers away from them and others could not figure out how this would work. Salespeople, on the other hand, thought that they risked losing their jobs if distributors communicated directly with factories. Due to the shift in demand from colas to other drinks, the problem of excess stocks and stock-outs was expected to increase. Therefore, the management decided to push forward with the introduction of the vendor-managed-inventory concept into the company’s supply chain (Richards, n.d).
Analysis
W’UP Bottlery has a significant market share in Uttar Pradesh market which provides great sales opportunity. Poor supply chain management leads to customer dissatisfaction and higher inventory costs (Davis, 2013). The company experiences stock-outs and at the same time overstocking, which ties up the working capital and increases operation costs throughout the supply chain. It was vital that the company knew the right quantities that the market required. Introducing an electronic platform through which demands throughout the supply chain could be determined, would go a long way in striking the right balance between supply and demand. The company spent a significant percentage of its working capital on purchasing returnable glass bottles as they made up 70 percent of the company's total sales. Overinvesting means that the company could profitably use part of the capital on something else, while under-investing entails that it may fail to successfully meet the market demands. It is necessary for companies to come up with the right balance and determine the optimum investment that would meet the market needs without tying up the working capital ( Khosrowpour, 2002 ).
Conclusion
W’UP Bottlery had two major decisions to make. It needed to make optimum investments on glass bottles as well as restructure its supply-chain. It required an investment that was enough to cater for optimum levels without necessarily tying up capital. It also needed to change from its traditional system of supply-chain management to a system that would effectively synchronize the supply of its products to the prevailing market demand, to reduce inventory costs and be able to satisfy its customers. According to Khosrowpour (2002 ), employing the idea of vendor-managed inventory would enable the company to design its supply chain in a way that production, supply and demand could be properly coordinated to avoid any unnecessary excesses or shortages.
References
Amorim, M., Ferreira, C., Junior, M. V., & Prado, C. (2017). Engineering systems and networks:
The way ahead for industrial engineering and operations management . Springer.
Davis, R. A. (2013). Demand-driven inventory optimization and replenishment: Creating a more efficient
supply chain . John Wiley & Sons
Khosrowpour, M. (2002). Issues & trends in information technology management in contemporary organizations . Idea Group Publishing. http://www.gbv.de/dms/goettingen/351887717.pdf
Richards, S. (n.d.). Supply-Chain Management at W’UP Bottlery (A). Darden Business Publishing.
Riezebos, J. (2001). Design of a period batch control planning system for cellular manufacturing . Retrieved from http://www.bdk.rug.nl/organisatie/clusters/psd/pdf/faim1999riezebos.pdf
