The Fresh Connection: Learnings
A report submitted to Instructor: Prof. Saral Mukherjee Academic Associate: Ms. Jahnvi V Trivedi
In partial reuirements of the course Supply Chain Management (2015-16
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Te!as"i # (1$%&%
$n %&th 'ebruar" %()*
Indian Institute of Mana+ement, Ahmedabad
The Fresh Connection Game: The fresh connection +ame is aimed at achievin+ correct strate+" bet-een the departments of purchasin+, operations, suppl" chain mana+ement and sales so as to s"ner+i/e ever"thin+ and achieve ma0imum 1$I. All the decision variables are interconnected and -e should see, -hat kind of collective set of decisions +ive us hi+her 1$I. I -ill describe the decision variables and the causal connections it has to other decision variables and ho- it -ill affect 1$I.
Relationships between diferent decision variables and causal loops: Cost Leadership Strategy: 'irst, in cate+or" mana+ement, -e have to discontinue products havin+ lo-er sales and hi+her variabilit". So discontinue 2 po-er ) ltr and 2 po-er Pet as the" have lo-er sales, hi+her obsolescence etc. 3o- to be a cost leader, -e cannot promise ver" hi+h service levels and as such -e have to promise lo-er service levels and shorter shelf life, but -e can provide them at a lo-er cost -hich is -hat -e compete on. 4arlier order deadline, lar+er trade unit, and hi+her promotions are all part of the cost leadership strate+". 5avin+ hi+her promotion time is also part of the strate+" so as to plan the production effectivel" so as to improve utili/ation. Priorit" of the customers -ill be decided b" the amount of sales to be done. 5i+her volume customers are +iven hi+her priorit" than lo-er volume products. VMI need not be done in this case as an elephant can be blind. In suppl" chain, this -ill result in lar+er fro/en period, hi+her lot si/es and lo-er safet" stock for both components and products and also production interval for each product -ill be hi+her. In operations, this -ill result in hi+her outbound inventor" and a lar+er -arehouse for outbound products, -hich -ould result in hi+her cost on outbound -arehouse. At lo-er levels, outsourcin+ is cheaper but for this strate+", -e should not outsource. It -ould be cheaper to maintain an outbound -arehouse. 6e should use onl" one mi0er, -ith hi+h capacit" so as to make sure that it has hi+h utili/ation and lo- cost. If -e follo- production plannin+, -e need to run at ma0imum efficienc", so -e need to run onl" % bottlin+ shifts. This -ould reduce the cost of emplo"ees and also overhead costs, but service levels mi+ht suffer a little because of that. This is -h", -e planned to offer lo-er service levels. 6e should choose to inflate P4T bottles, as it -ould result in hu+e cost savin+ in terms of inbound -arehouse, but it -ould add time to-ards bottlin+ lines,
so to improve the efficienc" -e need to increase the speed. 6e need not do SM47 action as -e are follo-in+ cost leadership strate+" and -ould be doin+ ver" lo- responsive planned production, chan+eover costs are not ver" hi+h. 6e should invest in lo-er ener+", smarter start# ups and lo-er -ater consumption so as to minimi/e the overhead costs and improve 2$% footprint. 6e should also train our emplo"ees in breakdo-n trainin+, so as to improve breakdo-n time and reduce it. A little preventive maintenance -ould +o a lon+ -a" in helpin+ this also. In purchasin+, -e look for reliable suppliers -ho can have lon+er lead times, but closer to production so as to reduce transportation costs and -e should choose hi+h ualit" and hi+h reliable suppliers, -e can a+ree to a deliver" -indo- of around % da"s and promise late pa"ments to make the interest costs lo-er. Trade units should be lar+e to accommodate lar+er deliveries. 2ertification is not al-a"s, reuired, just enou+h so that our 2$% footprint matches -hat -e promised. 6e can reduce 2$% b" reducin+ transportation costs, reducin+ the number of shifts, investin+ in -ater and ener+" savin+ measures etc.
Time Responsive Strategy: In time responsive strate+", the customer is most important and -e need to have the e"es inside the customer business to understand -hat is happenin+, so -e have to choose onl" those customers, -ho can allo- VMI, and -e definitel" need to do VMI so as to improve our responsiveness. 7ue to this, -e sell onl" to 8and Market and 'ood 9 roceries and not to 7ominick, and then decide on -hich products to sell. As lon+ as -e can +et hi+h mar+ins, -e should sell the products. 6e should also look at our investments, fi0ed costs and break#even sales so as to not +o into losses. So -e should sell all the products to these t-o customers. To prepare a time responsive strate+", -e should promise hi+her service levels, hi+her shelf lifetime, later order deadline, smaller trade unit and no promotions as a part of the time responsive strate+" to improve the contract inde0, so as to +et as +ood contract inde0 as possible, as -e are tr"in+ to compete on service rather than cost. Priorit" of customers, -ould be on the amount of variabilit", each customer had and -ho is -illin+ to pa" a hi+her mar+in for the produ ct. In suppl" chain, this -ill result in smaller fro/en period, smaller lot si/es and hi+her safet" stock for both components and products and also production interval for each product -ill be lo-er. This is to be more responsive and plan more re+ularl" based on ne- information supplied.
In operations, this -ill result in lo-er outbound inventor" and a smaller -arehouse for outbound products, -hich -ould result in lo-er cost on outbound -arehouse. At lo-er levels, outsourcin+ is cheaper, so -e should outsource for this strate+". 6e should use more than ) mi0er and each of them of smaller capacit" for this strate+" to -ork -ell. If -e run a time responsive factor", -e need hi+hl" responsive bottlin+ to happen, so -e need three shifts. This -ould increase the cost of emplo"ees but the responsiveness -ould increase b" a lot. 6e should choose to inflate P4T bottles, as it -ould result in hu+e cost savin+ in terms of inbound -arehouse, and it -ould not compromise the responsiveness. 6e need to do SM47 action as -e are follo-in+ time responsiveness strate+" and -ould be doin+ ver" hi+h responsive un#planned production, chan+eover costs can be ver" hi+h. 6e should invest in lo-er ener+", smarter start#ups and lo-er -ater consumption so as to minimi/e the overhead costs and improve 2$% footprint. 6e should also train our emplo"ees in breakdo-n trainin+, so as to improve breakdo-n time and reduce it. A little preventive maintenance -ould +o a lon+ -a" in helpin+ this also. In purchasin+, -e look for reliable suppliers -ho have shorter lead times, but closer to production so as to reduce transportation costs and -e should choose hi+h ualit" and hi+h reliable suppliers, -e can a+ree to a deliver" -indo- of around hours so as to be hi+hl" responsive and to never lose time responsiveness due to unavailabilit" in components.. Trade units should be small to accommodate lar+er number of deliveries, each one small. 2ertification is reuired, so as to reduce our 2$% footprint. 6e cannot reduce 2$% b" reducin+ transportation costs, reducin+ the number of shifts. 6e should also dual source so as to improve our abilit" to +et components. $ne of them should be a primar" source can be of a sli+htl" hi+her lead time and hi+her deliver" -indo- person, but the dual source should be of ver" short lead time, lodeliver" -indo- and also ver" hi+h responsiveness. This -ill help us +reatl" in ensurin+ responsiveness.
Causal Loops: 6hatever strate+", -e chose, -e have to ensure that ever"thin+ is ali+ned. In the 2ost leadership strate+", 5i+her 1$I is maintained b" makin+ costs lo-er in all possible -a"s and have hi+her revenues b" volumes, so -e are pla"in+ on hi+her fi0ed costs and lo-er mar+ins and hi+her volumes. So b" choosin+ to have onl" % bottlin+ shifts and ;# -eek fro/en period, the responsiveness of the firm decreases and also due to no chan+e in the production plan for ;#
-eeks, shelf life decreases. Also b" sendin+ in lar+e amounts, -e decrea se the transportation cost but this also increases the cost of outbound stora+e. !" choosin+ hi+h promotion levels, -e are tr"in+ to ensure that the product does not sta" for lot of time on our customer
Conclusion: To ma0imi/e the 1$I, of the firm, one of the t-o strate+ies could be chosen and then applied consistentl" across all the dimensions so as to have strate+ic ali+nment bet-een all the decisions. This reuires co#ordination bet-een all the functions and if ever"one tries to run their function at the absolute best the" can then the overall strate+", mi+ht be lost because of mis#ali+nment of strate+ies.