Supply Chain Management S-009 2018

Individual Assessment - Written Case Report #1

DUE: Hand in to the professor in class and upload to UEVirtual on 2 May 2018.
This project is worth 15% of the PEP grade.
Instructions
Read and review the attached case study: A Pain in the (supply) Chain.
You are required to identify key information and analyze what is happening. Use the Supply Chain
Management theory from the book and presented and discussed during class, to answer the
following questions.
Questions
1. What obstacles to supply coordination can you identify in the case?
2. How is the sales strategy of promotions and discounts undermining the overall objective
of a supply chain?
3. What can the leadership of Exceso do to improve the supply chain’s performance and
make sure there is enough stock in stores available for customers?
Presentation
The word limit for answers in this report is 1, 000 words, line spacing 1.5, in Arial font size 11.The
project’s pages should be stapled at the top left hand corner with student’s name clearly placed
on the front page, along with the date of submission and word count.
The use of diagrams and flow charts is encouraged as part of your answers.
Marking
The case report will be marked for:
Written Case Report
Presentation – style, format and word length
Clearly answering the set questions.
 Identify the supply chain problems and their causes
 Identify issues and propose solutions to Exceso’s sales and promotions strategy
 Propose commonly acknowledged supply chain solutions that to respond to the
problems found in the case
In general the mark is based on the case report’s content (whether you have answered the
questions) and followed the presentation criteria. Note that the report’s presentation is as
important as is the clarity of your answers.

1
 A Pain in the (Supply)
Chain
At the end of the trading quarter, stationary supply firm Exceso Corporation is in a
panic to meet its wildly ambitious sales goals. The company's aggressive sales
promotions are attracting retailers, but can they meet the orders?
It was mid-Monday morning on a
day in late March as R. Foley
Vinton, the CEO of Exceso, guided
his visitor Andrea Valdini, a Wall
Street market analyst through
Exceso’s Manufacturing Facility #
14. As they closed the door leading
out of factory he was relieved not to
have the machine noise interrupting
his thoughts. Now the noise had
softened, Andrea asked Foley "How
many shifts are you running?”
“Three,” replies Foley, “we're
essentially running at full capacity."
Andrea makes a note of this in her
book and asked “How long have
you been operating at full
capacity?”
Foley not wishing to reveal the full
truth, said “We shut down the line
last week to install those new robots
you saw”, leaving out that the
installation opportunity only
occurred because the large plastic
injection-mold machine had broken
down and needed repair, yet again!
This had stopped the production of
their highest selling item, the
ClickZipPlus fastener, for a week.
“So now we're running full capacity
in an effort to fill all of our orders,”
he finished.
As an automated delivery robot
passed by on the way to the
storeroom with a pile of
ClickZlpPlus boxes, he hopes that
the constant problems with the
Adapted from the John Butman HBR Case Study, May 2002
machine will not be a problem for
the production schedule in the
coming months.
“Are you going to meet your sales
forecast for the quarter?” asked
Andrea.
“I set a 9% sales growth target for
the quarter. That's what I told the
analysts, and that's what my sales
team are aiming for.” Foley smiles.
“And my sales team usually reaches
their targets.”
“But how can Exceso achieve such
strong growth in this economic
climate? Especially due to the price
pressure you're getting from
retailers” replied Valdini seeking
more information for her analysis
report.
Foley doesn’t answer her question
immediately. Instead, he quickly
guides her out of the building
distracting her with an offer of some
refreshments. As they walk through
to the administration offices he
remembers nervously the difference
between retail orders and actual
consumer demand.
Later that day in Trenton New
Jersey, one of Exceso’ high value
procurement managers is hungry.
Alice Dias of Flemings ValuMart, is
leaving her office in the East Coast
Regional Headquarters to get
something to eat. She is late for
lunch because she's been on the
phone with the Exceso Regional
Sales Manager for more than an
hour, negotiating purchase terms for
a new order of ClickZipPlus.
Seeing her Assistant Manager, Jane
Wendall, sitting alone in the lunch
room, she joins her. “You want to
know how to work the supply
chain,” she says to Jane as she sits
down, “You should talk to me!”
“Did you get a good deal?” Jane
asks. Alice replies “I committed to
buying 3,000 cases of the
four-pack".
“What?” Jane is shocked by this
amount of ClipZipPlus’ bought by
Alice, “Correct me if I'm wrong but
we only sold only 1,800 cases in the
last two quarters combined! Why
would you order nearly double
that?" asks Jane.
Alice nods in partial agreement
"Correct. But we're buying them at
a 6% discount of the normal price.”
“Wow!” exclaimed Jane, “Exceso
must be a little desperate to sell as
many ClickZipPlus’ as they can”.
Alice continues “They're also
committing to increasing their
contribution to promotion and
advertising in newspapers and
magazines! This means that we’ll be
getting a greater discount, if we
include that. And that's not all.” She
looks at Jane, her gaze asking her to
guess what other concessions she
might have negotiated from Exceso.
Jane tries to imagine the most
2
ridiculous sales incentive to close a
deal and says "I don’t know… um,
they've agreed to deliver on a
Sunday?” “As a matter of fact, they
have," says Alice coolly as if she
makes this kind of deal all of the
time.
Jane now turns critical. “Wait a
minute. We don't have warehouse
space for 3,000 cases, so we'll have
to pay for the extra storage. That’ll
affect our margin wont it? It could
end up costing us more than it
saves.”
“That would be true,” Alice nods,
“if I planned to keep the whole
shipment. But I don't.” She leans
forward to explain, “Exceso is only
selling at a 4% discount to our
southern region. 4% means that they
are buying ClickZipPlus four-packs
for six cents more than what we will
be paying”
Jane, finally she realized what Alice
had done.
“I'm going to ship half of this order
directly to the southern region”
Alice tells Jane “So they get our 6%
discount. Then I'm going to sell
another 500 cases to a product
diversion firm, VXT, at our cost but
with an option to buy back at a 3%
premium within 6o days”.
Jane was a little surprised by this
last point. Product diversion is a
practice that upsets the smooth
functioning of a supply chain. It is
taking goods bought for retail sale in
one market or region and diverting
these to be sold in another market or
region without the knowledge or
permission of the seller.
“But hey” Jane thought, “If Exceso
is selling at such crazy discounts,
why not take advantage of it.”
Jane now understood why Alice was
so happy with herself, “So we’ll
also have a source of additional
inventory but with no carrying
costs. Even with VXT’s buyback
costs, the price will still be lower
than Exceso's” Jane said.
Jane also sees the other positive in
Alice’s plan using product
diversion, she wasn’t just buying for
her region, but was taking
advantage of a larger discount
opportunity and spreading it over to
Flemings ValuMart’s Southern
region as well, helping Flemings’
national profits but at the expense of
Exceso’s future sales.
"We will still have 1,000 cases for
the quarter to stock our stores. We’ll
run these at a special promotion. If
that doesn't increase our retail
volume by 10%, I would be
extremely surprised,” says Alice.
“Do you think the Exceso CEO
Foley Vinton knows that this is how
his sales people achieve the target?”
asks Jane “Oh, he knows” Alice
says still smiling at her good
fortune.
Later that week, Martin Wu,
Exceso's head of sales, was thinking
how or if his team will meet the
sales target set by Foley Vinton. On
his way to a meeting to discuss this
issue with his sales managers, he
meets Foley, who was about to enter
an important meeting in Exceso’s
Board Room.
“So, Martin!” Foley asks “How are
we doing? Are we making our sales
numbers?” Martins face signaled
what he was about to say, “No Foley
we’re not.”
Foley returned Martin’s gaze. “But
the target was set based on your
forecast data. We all agreed to the
plan:” “Yes,” said Martin “but that
was raw data and not the most up-
to-date. It contained errors.”
“Okay” responded Foley, seeking
more information, “How far off
target are we?” Martin thought a
little and responded, “We’ll do well
to grow sales by 3%.”
Foley remained quiet thinking
hopefully “Okay Martin…, I hear
this every quarter… and every
quarter we make the number.”
"We're doing everything we can”
began Martin, “We're offering
discounts and flexible terms. We've
got some good display ideas. We're
trying to get some new companies to
sell our products. We even agreed to
Sunday delivery for Flemings.” he
explained.
Foley nodded slowly and answered
“That’s good and we've still got a
few weeks to go.”
"But,” Martin continued "There's
really only one way to make the 9%
target. I thought we had agreed to
stop the channel loading.”
“Look” says Foley, “The time is not
right to completely stop loading.
I’ve just had the analyst from Wall
Street visit the factory and she was
quite impressed with production
capability to meet these sales
forecasts. I’m expecting a positive
report.”
Moving closer to Martin, Foley
confided “What we need now is a
lift in the share price. Achieving our
sales target is just the right type of
news and with a good analyst report,
it will give us that.”
What Foley didn’t reveal was that a
high stock price was quite important
to him, as the meeting he was about
to enter was to discuss a recent offer
from a European competitor.to buy
Exceso. “Martin, we’ll review the
sales policies and incentives in the
next quarter, okay” conceded Foley
as he made moves to enter the Board
Room.
After visiting Exceso’s factory
Andrea Valdini had flown back to
New York and had been busy
writing the Exceso market report.
As she walked to her office that
morning, she stopped at a nearby
Flemings ValuMart to check on
how Exceso promoted ClickZipPlus
in retail stores. She also wanted to
buy some fasteners for herself.
Walking down the aisle she comes
to the fastener display. There she
sees a single four- pack of
ClickZipPlus hanging alone,
surrounded by empty spaces where
other four-packs and eight-packs
should have been.
3
A few of the places that are
normally reserved for Exceso
products have been claimed by
Exceso’s competition.
The single ClickZlpPlus pack
looks to be under siege,
surrounded by stronger more
confident products.
Andrea sees the store
manager at the end of the
aisle and calls out, “I'm
looking for an eight·pack of
ClickZlpPlus, there are none
on display.” “I know,” replies
the store manager, “we have
none left.”
“When will you have them?"
enquires Andrea.
“We'll have plenty of
four-packs on Monday;” the
manager says helpfully. “At a
special low price too.”
"No eight-packs?" asks
Andrea. “No, they're having “But you only have
problems with the eights,” the one of them here”
store manager reveals. “I'1l
discount a double four-pack
for you if you want.” He said
encouragingly.
"But you only have one of
them here,” Andrea says taking the
four pack off the peg. The manager
takes on a consultative tone. '”Well,
we've got other brands to choose
from. The Carlex eight-pack is a
little cheaper, anyway” he tells her.
"But, what about the quality?” asks
Andrea. “Well it's just as good,” the
store manager assures her “Okay,
I'll try the Carlex the” says Andrea.
The manager nods, and says softly
shaking his head “Exceso's a great
company, but I don't think they can
keep this up much longer”. Andrea
was surprised by the store
manager’s comment “Can't keep
what up much longer?” she asks.
She’d just been at Exceso’s factory
producing ClickZipPlus. It was
operating at full capacity and there
is no stock on the store’s shelves.
Andrea wonders “Is it possible that
this store manager knows more
about Exceso than I do?”
At the sales meeting Martin Wu is
trying to keep control of his sales
team. Today he also has support
staff attending the meeting, so the
room is full of his regional
representatives, people from
promotions, forecasting, and
Exceso’s senior key account
managers.
“If we go with higher discounts,”
says an experienced sales manager,
“we'll move more product. But it's
not going to sell through to
consumers. It'll end up in a
warehouse someplace. That we
know for sure, and, then we’ll be
selling less for the next two months
as they use that stock”.
Another sales team leader who was
not a supporter of the high sales
target asked “Do we still need to
make a profit? We used to have this
good thing called a sales margin. I'd
like to see that again, and I’d like
our targets to be related to actual
sales, you know, to customers who
are using our product!”
Martin almost laughs, “Of course
we still make a profit, but less due
to the high discounts we’re
offering."
“Even when you count
the cost of display and
sampling?” asks a
younger manager, with
a frown.
“I’m not sure,” Martin
admits. “But we do
before the cost of
sales.”
“Okay, but what about
manufacturing over-
runs?” asks the
experienced manager
“Facility 14’s line was
shut down all of last
week, and now they're
running full capacity at
three shifts to meet the
production schedule.
What I’d like to know
is why are they
producing so much?”
“They must be using
those original forecasts
we developed. But
didn’t we update them
with new data?” interrupts the team
leader.
“They must be using the 9% target
to guide production, not the actual
levels of retail sales that we re-
forecasted” added the experienced
manager.
Martin thought about this
conversation and didn’t like where
it was heading. Hoping to shut it
down, he interrupts “Alright, listen,
Foley has made a promise to the
analysts. The analysts have made a
promise to the shareholders. And,
I've made a promise to Foley. We
have to do whatever it takes to make
that sales target!”
At that moment, Joseph Vikas, a key
account manager, enters the room.
“Would an order for 40,000 new­
account cases help?” he asks them.
Everyone’s eyes tum to Vikas.
“Who's the new customer?” Martin
asks. Vikas smiles and tells them,
4
“Its Regency Brands. They are an
overseas trading company. They
sell into Eastern Europe, China, and
other markers where we have no
organization or trading reps.”
“That is a strange combination of
sales territories,” comments the
experienced manager questioningly.
On hearing that comment, the term
‘product diversion’ flashed through
Martin’s head. He thought “With
the level of discounts we’ve been
offering across different sales
regions, we’ll be in real trouble if
this company is a product diverter.”
“What price did you quote?” he
asks, half hoping it will be an offer
he can refuse.
“Deep discount! If we receive
payment within five days” replies
Vikas
“Okay, so what do we know about
this company?” asks the team
leader.
Vlkas looks at him hard, “We know
they're willing to sign the deal in
time for this sale to be included in
this quarter’s sales numbers”. The
room falls into in silence, “Well”
says Martin, “Let’s do our due
diligence on them”
“The offer is only good until eight
p.m. tonight,” replies Vikas. “I
suppose I can make a few calls
about them, but they appear to be
okay to me.”
“Well how are they going to pay?”
asks the experienced manager.
“They have a Letter of Credit from
London bank." says Vikas. "That
I've already checked out.”
And with that the meeting broke up.
Martin sat alone in the room
wondering if Vikas’ sale to Regency
Brands would come back to haunt
them.
Andrea is in her office on Friday
morning checking the final draft of
her report that will be released to the
market on Monday.
“Exceso is a fundamentally sound
company,” she thinks. “They're just
caught in a little downturn created
by flat retail sales and a slow
economy. Foley Vinton has an
admirable track record.
ClickZipPlus is still the market
leader, even if the competition is
catching up. Excesso has a strong
balance sheet.”
But she can’t stop thinking back to
her experience in the Flemings
ValuMart. That empty product
display still worried her. “It’s just
one store that was out of stock,” she
thought rationalizing the situation.
“I didn’t review the inventory of
every retail outlet in the country,
and my evidence is anecdotal at
best. But if retail sales are lower,
why are they operating at full
capacity to manufacture even more
product?” she wondered. “Their
share price hasn't moved in the last
six months, though they're not alone
in that. The economy is slow and
many have had poor stock
performances recently,” she
concluded.
Putting her concerns aside, she
thought, “Exceso is just going
through a low cycle.”
Late on Friday afternoon Alice
Dias’ office phone rings. She
doesn't recognize the number
displayed; it is from somewhere out
of state. With a smile she picks up
the phone, "Hello, this is Alice
Dias.”
“Hello, Ms. Dias,” says an
unfamiliar voice. “I represent
Regency Brands.” “Yes?” replies
Alice politely. “How may I help
you?”
“Actually I am hoping that I can
help you,” says the voice. “Regency
Brands is in a position to offer a
very attractive case discount on the
Exceso ClickZipPlus fastener.”
While Alice had just made a good
deal she wanted to hear more. “I
believe I already have the lowest
discount available, direct from the
manufacturer,” she tells the voice
from Regency.
The person from Regency quickly
responds, “I think that I can beat it”.
“Well, thanks for calling” replies
Alice, “I'm listening.”