Please read the case study below and answer the following question:

In the case study, a decision was made to outsource transportation. Using the 6-step decision making process describe how Hali-Nature Care would make the decision whether or not to outsource transportation. Ensure that each step of the 6-step decision making process is listed, and specifically applied to the case study. (2 Lines per step. Max 12 lines)

Step 1: Identify and define the problem

Step 2: Develop alternative solutions

Step 3: Evaluate the alternatives

Step 4: Select the best alternatives

Step 5: Implement the best alternatives

Step 6: Evaluate and control

Hali-Naturecare: Case Study

Background Hali-Naturecare is a pharmaceutical company that markets a wide range of natural remedies and medication, designed to cure and relieve a variety of medical conditions. In addition, it also manufactures and sells supplements. These include natural vitamins and minerals which are used to combat common colds and flu, reduce blood sugar, lower blood pressure and regulate hormones. Hali-Naturecare commenced trading in 1992,when two medical practitioners saw a gap in the market for natural remedies. They observed that many patients sought over-the-counter medication for minor ailments and identified this as a gap in the pharmaceutical industry. The business originally aimed to provide vitamins to supplement the modern diet, which often lacks essential vitamins and minerals. After building a successful medical practice in in the Western Cape of South Africa, the partners, Dr. Mike van Zyl and Nicolette Britz, sold their practice and hired David Cupido, a qualified pharmacist. David Cupidos role was specifically to develop the laboratory in which research and production of Hali-Naturecares products would take place. The three partners pooled their savings and with the help of a short-term loan from their bankers, established a small laboratory, warehouse and the requisite infrastructure. After trading successfully for 23 years, this small business has grown into what can best be described as a large and profitable enterprise.

As far as the various branches are concerned, each area is managed by a branch manager who is responsible for the following duties:

1. The recruiting, selection, training, managing, motivating and appraising of the various salespeople and branch administrators;

2. Branch administration including payment expediting and credit control;

3. Budget formulation and management (sales, administration and sales expense budgets);

4. Sales forecasting;

5. Sales territory design and implementation; and

6. The attainment of sales and related targets.

The salespeople employed by Hali-Naturecare are remunerated with a basic salary of R10,000, as well as a commission of 5% of sales above R100 000 per month, and the full use of a company car. On top of this, salespeople are allowed an entertainment allowance of R2,500 per month, and an annual bonus in the form of a 13th pay cheque. Besides the above remuneration, Hali-Naturecares salespeople also enjoy employee benefits which include a pension fund, a medical aid scheme (which is subsidised by the company), group life cover of four times their annual salary and income security which pays the employee 75% of his or her salary, should he or she become temporarily or permanently disabled.

Organisational structure and talent management

In terms of the organisational structure, it was decided to format the company on a functional basis (i.e. on the various functional areas in the firm). However, such a structure has led to an us vs. them culture in which departments vie for resources and create silos to protect their turf.

Furthermore, at branch level, salespeople see their colleagues as enemies rather than internal competitors and in-fighting for customer support has become a common occurrence.

For example, because salespeople at branch level have undefined sales territories, they often find themselves calling on customers who have been canvassed previously by colleagues, thereby wasting time, increasing travel costs and creating an image of poor territory management and sales force collaboration.

Because the organisation does not deal directly with consumers, salespeople call on pharmacies, hospitals and medical practitioners in their various provinces for business, which further creates time management problems because medical doctors, pharmacies and hospitals tend to be widespread, although in some places they are clustered. The latter helps to reduce travelling costs and increase face-to-face communication opportunities for marketing purposes.

Importing and exporting

Since Hali-Naturecare has been following a cost leadership strategy for three years, it decided to import 50% of its products (medication) and raw material (to produce bespoke medication) from India, China and other countries in Asia and Europe. This strategy has led the firm to move away from innovation to become an importing company; something that the founder members vowed never to do.

During a recent board meeting the subject came up about the shift in focus and it was decided to inject R54 million into research and development (R&D). They sought to develop inexpensive vitamins for patients who suffer from HIV/AIDS-related conditions, because many of these patients live below the bread line and cannot afford the medication they need.

The South African government has asserted that the Department of Health will encourage all primary-care medical institutions to support Hali-Naturecare if the company can successfully develop such a product, because then they would no longer need to support offshore organisations. The EXCO members of the organisation are excited about the opportunity, because it could lead to revenue increasing by as much as 30%.

Procurement

From a procurement point of view the companys procurement professionals pride themselves on being effective negotiators. Dr van Zyl is very people-oriented and he has developed long-term relationships with the organisations that Hali-Naturecare buys from, both nationally and internationally.

Mr Shapiro, the chief buyer who has 20 years of procurement experience, believes that Dr van Zyl is too soppy and feels that buying should be transactional in nature rather than focused on building relationships. He also strongly believes that the company should play one supplier up against the next in order to secure the lowest price. Mr Shapiro has asserted on many occasions that procurement is like a boxing match where the buyers primary role is to beat the supplier into submission so that the lowest possible price is secured, even if the strategy results in the supplier selling its wares at a loss. Elizabeth Chirambo, Sizwes deputy, is of the opinion that suppliers should sell at their best possible price rather than their lowest.

Operational management

From an operational point of view the organisation has two focuses. Firstly, it produces its own products via the transformation process, which are then distributed through various links in the customer chain (the outbound part of the supply chain) to the end consumer. Naturally, operations do not stop here, since all employees are part of the operations endeavour. Secondly, there is a focus on the importation of healthcare products, which need to be brought into the country from various targeted countries, such as India and China. To perform this function effectively and efficiently, Hali-Naturecare has put together a small department to monitor the importation and exportation of goods.

Transport and outsourcing

Hali-Naturecare has historically managed all of its transport activities internally. Hali- Naturecare has recently started exporting medical care products to countries in Sub- Saharan Africa and has outsourced the key activities to Richmond Logistics, a third-party logistics company. The decision to outsource was based on the idea that transportation is not a core organisational activity. This approach has allowed the organisation to concentrate on what it does best: product innovation, importing and marketing.

Richmond Logistics is a specialist and highly professional import and export facilitation company that offers the following services: internal and international freight quotations, export packing, scheduling of carriers, inland and international freight movements, containerisation and consolidation of freight, trans-shipments, and the supervision of freight movements including loading activities and tracking. Richmond Logistics also controls the export and import documentation, inspections and insurance, warehousing and insurance claims.

The primary decision to outsource these activities fell under the operations director. He sees the outsourcing of importing and exporting activities as a temporary measure, and he plans eventually to in-source the above activities, once the organisation has built up sufficient infrastructure.

This decision has greatly angered Dr Mike van Zyl, the supply chain manager. He feels strongly that importing and exporting should never have been the responsibility of the operations manager he feels that they are integral activities of the supply chain. This argument has occurred on numerous occasions during board meetings, to the point that the CEO has indicated that it needs to be resolved as soon as possible, as it has dramatically changed cooperation between the functional areas. Both directors are headstrong individuals and resolving the matter in the short term seems unlikely.

Warehousing and storage

From a stores and warehousing perspective, Hali-Naturecare works on a first-in- first-out basis.

It does stocktaking over six months (usually over weekends), which means that staff need to be paid overtime. During the last stock count, over R250, 000 worth of raw material and medication could not be accounted for, even though the warehouse and stores areas were monitored by close circuit TV (CCTV).

Although the aforementioned sum was down by over R100, 000 from the previous year, Mike van Zyl expressed his dissatisfaction and added that if losses continue, the organisation would stop paying annual bonuses to all staff members until the culprits were found.

One of the shop stewards remarked that if this occurred, he would instruct his union members to go on strike, because the bonus is not a gratuity but a 13th cheque. All operation employees agreed to support the shop steward even though they are not officially unionised.

From a facility location perspective, the factory and company head office are situated in Killarney Gardens, roughly 15km from Cape Towns central business district. Known as the logistics centre of Cape Town, Killarney Gardens is about 30km from Cape Town International Airport, 10km from Cape Town Harbour and a short drive from the two main national highways.

The reasons for selecting this particular area are as follows:

The proximity to Cape Town harbour, airport and national roads;

The very competitive price of land;

The proximity to the fastest growing residential area in the Western Cape for skilled and semi-skilled labour;

and The proximity to Richmond Logistics.

The warehouse and stores layout has recently been changed because of problems with bottlenecking. The aisles were widened, which has decreased store and warehouse space, but provided a better flow of materials and goods, reduced breakages and injuries to people, and most importantly, improved service levels because the additional aisle space has facilitated quicker movement of goods and people.

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