Holden Evan is a multinational company whose products include pharmaceuticals and over-the-counter medications. The suppliers of plastic bottles, caps and folding card boxes have not been consistently delivering these components to Holden Evan. As a result, Holden Evan has been late in shipping its pharmaceutical products to wholesale customers such as supermarkets and drugstores, and many of its popular product sizes are often unavailable on shelves. This has caused customer satisfaction to suffer. As the Director of Marketing Logistics, you have been asked to evaluate this problem and take actions to resolve it as quickly as possible, with meaningful improvement in results within one or two months. The VP of Marketing and Sales says: "Operations is always trying to minimize inventory to keep costs down. I know that holding large inventories is expensive, but the whole point of inventory is to buffer against uncertainties in our supply chain. We have to improve our customer service before it hurts sales! You have my approval to hire a consultant if that's what it takes." At the start, you hired a consultant despite the expense. This was the best choice, because you did not yet have enough information to make your own evaluations. You hire a consulting firm to examine your supply chain. The consultant says: "There are several factors here. First, you have a large number of packaging types, which adds complexity and requires separate inventories. Second, you may have more suppliers than you need, and you should consider consolidating to reduce inventory costs. Third, your inventory levels are too low to give you much flexibility and responsiveness in meeting customer needs. We'll know more after we study your situation in detail." After completing analysis, the consultant says: "First, your inventory management system and policies are causing your products to periodically go out of stock. Low inventory levels have hurt manufacturing's ability to respond to the marketplace in a timely fashion and low inventory levels affect your ability to adequately service your customers. "Second, you have eight suppliers four for bottles and caps, and four for cardboard cartons. Not all of these suppliers are performing equally well. "My analysis of the current product line mix tells me that 80% of your sales are from 20% of your products, due to the variety of sizes offered for those products. You may be able to reduce the number of product size offerings and simplify your inventory." Q1. Based on the consultant's analysis, what is the most important issue affecting customer satisfaction? a) The company offers too many versions of its products. b) There are too many suppliers. c) Packaging stock runs out too frequently.

The consultant finds a number of issues that are causing inventory problems. First, the packaging buyers, who place orders with manufacturers, have been told to focus on keeping inventory costs down and do not always know when inventory levels are too low. Second, inventory levels are low for some components but not others: for some items there is a six-month supply in stock. So far, you have learned that inventory is too low for some components and too high for others, and that the packaging buyers have been focused on keeping inventory costs down without knowing when inventory levels are too low. Real-time information on retail sales would help, but gathering this information would require computer system integration with retailers. Q3. What action will you take to improve inventory management as quickly as possible? a) Ensure that packaging buyers know which products are most popular, and reward their managers more for meeting customer order requirements than for keeping inventory low. b) Immediately raise all inventory levels by 20%, to ensure that all levels are adequate. c) Spend the next few months integrating retailers' sales information into Holden Evan's inventory management system. When complete, this will bring in real-time sales data. You decided to spend several months integrating retailers' sales information into Holden Evan's inventory management system. This was a poor choice, because it did not address the immediate problem. The VP of Sales and Marketing explains: "Now that you have addressed short-term inventory problems, you can focus on longer-term improvements by introducing integrated logistics management. This means building teamwork and integrating supply chain computer systems with retailers and suppliers to share information. Participation upfront from all areas of the company is required to succeed in this effort. The company must integrate its logistics system with those of its suppliers and customers so that the whole distribution network performs well. Many large companies require several years to successfully implement computer systems and technologies." Q4. What is the best first step to implementing formal supply chain integration? a) Immediately develop supply chain metrics. b) Create a permanent, cross-functional supply chain team to maintain high logistics performance. c) Focus on deploying supply chain information management software. The VP of Sales and Marketing says: "I appreciate your eagerness to solve problems. But we need to establish a supply chain team to maintain high logistics performance." Q5. Your supply chain team meets and decides that the first major step is to develop overall supply chain metrics. Which metrics would be most important to supply chain improvement? a) Advertising effectiveness, employee satisfaction, inventory holding costs. b) Frequency of stock-outs, inventory holding costs, reliability of supplier delivery. c) Employee satisfaction, frequency of stock-outs, reliability of supplier delivery. Q6. Now that you have established your metrics, what is the best long-term approach to improving supply chain management? a) Increasing the inventory levels of all packaging components. b) Ensuring that packaging buyers know which products are most popular, and rewarding their managers more for meeting customer order requirements than for keeping inventory low. c) Integrating work teams and computer systems with vendors and suppliers to manage inventory more effectively. You chose to integrate work teams and computer systems with vendors and suppliers to manage inventory more effectively. This was the best choice, because it will help ensure that inventory levels are regularly monitored and adjusted. Supplier Performance Scorecard Bottles/Caps Folding Cartons Metric 1 2 3 4 5 6 7 8 Delivery & Reliability (Delivery to Commitment) 93% 98% 97% 92% 94% 99% 98% 92% Responsiveness (Order Fulfillment lead times (days)) 8.3 8.1 6.5 9.5 6.2 5 6.4 8.5 Flexibility (Ability to respond to changes(days)) 10 5 4 9 8 4 3 7 Quality (lots rejected) 0.50% 0.30% 0.30% 0.60% 0.50% 0.40% 0.40% 0.60% Q7. Reducing the number of suppliers may face resistance from your organization, However, it will increase the amount of business for your remaining suppliers, who could then provide lower pricing, greater responsiveness and quicker deliveries. Currently you have eight suppliers. Based on the chart in front of you, you chose to reduce to four suppliers: two for bottles and caps, and two for folding cartons. Which four suppliers will you stick with? a) Suppliers 2 and 3 for bottles and caps, and suppliers 6 and 7 for folding cartons. b) Suppliers 3 and 4 for bottles and caps, and suppliers 7 and 8 for folding cartons. c) Suppliers 1 and 4 for bottles and caps, and suppliers 5 and 8 for folding cartons. Q8. What is the best reason for the level of supplier reduction that you chose? a) It is best to rely solely on the supplier who has the highest overall performance. b) It is important to have flexibility so that one supplier can deliver if the other fails. c) It is important to have as many supplier options as is possible. Q9. Now that you have addressed your supply chain issues, you need to address customer service issues. Important retailers are upset about continuing late shipments, and are threatening to stop carrying your products. What will you do to reassure them? a) Tell them to be patient, because the situation should be improving over time. b) Promise that deliveries will be on time from now on. c) Explain the actions that you have taken and the improvements you expect.