Study case 3
Part I: The Case Study linkbelow is for the Case Study 3. Read and study the case andaddress each ofthe questions at the end of the study. In addressing each of the questions, create aPower Point presentationto includethe following:
– Problem
– Identify and describe alternative solutions
– Justify your recommendations for EACH question
Part II: In addition to the Power Point presentation, a 10-15 minute video will be required using Kaltura. In this video you will summarize your findings from your Powerpoint. This part of the assignment will provide the visual presentation of the case study.
Instructions: Attach two files to the Case Study #3 assignment: 1) Power Point presentation (.ppt or .pptx file) and 2) Kaltura video. To access Kaltura, click on the “sun” icon on the toolbar above this text box.
29 Managing Supply Chain
Complexity in a Tea
Manufacturing Company
1
Abstract
In this case we present issues facing supply chain management in a teay manufacturing
company. The company manages two types of products, ready-to-drink jasmine tea and
ready-to-drink fruity tea, each having different complexity issues in their supply chain
management processes. The case explains characteristics of the products, the supply
chain structures and the nature of demand. The case is expected to facilitate discussions
of various supply chain concepts such as the bullwhip effect, supply chain coordination
and vertical integration versus outsourcing.
The First Meeting
It was Friday, June 27, 2008. The coordination meeting between the marketing, distri-
bution and production departments was taking place. Some stores have been out of
stock of some types of Fteh in the last few days, the distribution manager of Tehindo,
a producer and distributor of tea products in Indonesia, informed the attendees. Fteh is
their brand name for ready-to-drink tea with a fruity flavor.
We have too many product variants of fruity tea. Such a significant shortage has
never happened to our main product, Goteh. Why dont we focus on Goteh? Its sales
volume is high and demand fluctuation is low, the operations manager added.
The marketing manager responded after a brief of silence, It is indeed true what the
operations manager mentioned. But, if we want to enter wider market segments, it is a
must for us to keep innovative products with more variants in the market. In the future,
there is no doubt that innovative products like Fteh with various flavors will hold a
strong market segment. Their contribution to revenue is increasing over time.
But too many variants of Fteh increase the difficulties in production and distribution
activities. Our performance looks bad because we often experience out of stock situations
for certain variants, but an excess of inventory for other Fteh products, the distribution
manager continued.
1. I. Nyoman Pujawan and Mahendrawathi Er, Sepuluh Nopember Institute of Technology, Kampus ITS
Sukolilo, Surabaya 60111 Indonesia ([emailprotected]) and ([emailprotected]). This case was
prepared solely to provide material for classroom discussion. The authors do not intend to illustrate either
effective or ineffective handling of a managerial situation. The authors have disguised some names and
other identifying information to protect confidentiality. The views presented here are those of the case
authors. Copyright 2009 by Operations and Supply Chain Management: An International Journal and
the authors. Used with permission.
221
The marketing manager insisted that the increasing number of new variants of Fteh
has enabled the company to hold a strong segment of teenagers. The classic Goteh did
not really embrace the teenager segment of the market.
Company Background
Tehindo has a long history in the tea business. The company began as a small home
business in Indonesia in the 1940s. The owner started the tea business in Central Java,
but then moved to Jakarta in an attempt to capture larger markets after some 25 years.
The company opened its first factory in the mid-1970s in Jakarta, producing ready-
to-drink bottles of tea. The opening of the factory created a significant increase in sales,
reflecting a healthy market for tea products.
Products
Today, Tehindo produces three types of tea products. The first is called Goteh, a jas-
mine tea mostly packaged in glass bottles. A small percentage of this tea is also packaged
in tetra packs (a small carton box) or tetra wedge (a small carton in the shape of trian-
gular pyramid). The bottled jasmine tea is very popular in Indonesia and contributes the
majority of revenue to the company. The product is consumed by all market segments.
The second product type is called Fteh, a tea with a fruity flavor, packaged either in glass
bottles, tetra packs or cans. Fruity tea is more directed toward teenagers and the distri-
bution of products is through modern retail chains such as Sogo, Giant, Carrefour, Alfa,
Superindo, Torseba Yogya and Indomaret. The third product category is cteh, a dried,
chopped and ready-to-boil tea leaf, normally packaged in tea bags.
Among the three classifications, only the first and the second types are discussed in
this case. Unlike Goteh, which has very limited product variants, as shown in Table 1,
Fteh has a large number of variants based on the product flavors. Currently, the com-
pany offers various flavors of Fteh including guava, strawberry, lemon, apple and black
currant.
In the soft drink industry in general, there are two types of products according to
their packaging. The first is called return glass bottle (RGB), where the empty packages
are returned to the factory and used to produce new products. The second category is
one-way product (OWP), where the packages will not be returned to the factory but
Table 1 Product variants for Goteh and Fteh
Product Group Packaging Size (ml) Number of flavors
Goteh (Ready-to-drink
jasmine tea)
Glass bottle
Tetra pack
Tetra pack
220
200
250
1
1
1
Fteh (Ready-to-drink
fruity tea)
Glass bottle
Tetra wedge
Can
Plastic bottle PET
235
200
318
500
8
9
9
5
222 Part 5 Integration Issues
will be disposed of after the products have been consumed. In Tehindo, only the glass
bottles are classified as RGB, while the others are classified as OWP.
Managing RGB products is certainly more complicated than OWP. One of the chal-
lenges would be to ensure a smooth flow of the products downstream as well as the
empty bottles upstream. High inventory levels at some supply chain players for various
reasons (including forward buying and forecast inaccuracy) would result in shortages of
empty bottles at the factories for a certain period of time. Tehindo has a policy of
announcing any price increase two weeks prior to the increase date. This is simply to
please the wholesalers and retailers as they usually feel uncomfortable with a sudden
price change. (Note that some other soft drink companies in Indonesia do not give
wholesalers and retailers the privilege of knowing price increases well in advance, as
this company does.) To avoid massive forward buying, the company requires the retai-
lers and wholesalers to exchange empty bottles for full bottles, if they order within the
two-week period from when the price increase is first announced until the date of the
actual increase. Obviously, this is not possible for the OWP.
Supply Chain Network
Currently, Tehindo has two main interrelated businesses: one is in manufacturing and
the other in the distribution of tea products. The manufacturing processes are based in
ten manufacturing plants spread across three islands in Indonesia: Sumatera, Java and
Bali. One of the factories (located in West Java) is dedicated to producing OWP and
supplies all the distribution centers. Other factories produce both RGB and OWP pro-
ducts. The supply policies are generally based on geographical proximity. For example,
two factories in Sumatera supply the whole market area on Sumatera island, while the
factory in Bali supplies Bali and the Nusa Tenggara market area.
To produce ready-to-drink tea, only a couple of types of materials are needed. The
materials for producing jasmine tea are tea leaves, water and sugar. For fruity tea, the
fruit extract and other additional materials are also needed. The production process is
quite simple. The liquid sugar, tea extract and fruit extract as well as other materials
are mixed, sterilized and then packaged.
A vertical integration model is still very much practiced in this company. The tea
leaves are supplied by a company within the Tehindo corporate organization. It has a
total of over 1,500 hectares of tea plantations in different areas in West Java.
Downstream, the products are distributed through 11 regional sales centers located in
Sumatera, Java, Bali, Kalimantan and Sulawesi. Each regional sales center has a number
of sales offices and warehouses. Overall, there are about 150 sales offices all over
Indonesia. In East Java alone, for example, there are 17 sales offices. East Java is one of
the major market areas for Tehindo.
There are four different distribution channel configurations, as depicted in Figure 1.
From the figure, it is evident that some products are shipped directly to consumers. This
happens when there is a large order from an individual or an organization for such
events as parties or gatherings. The other possibility is to deliver the products from the
sales center to retailers who will then sell the products to the end customers. The retai-
lers here could be a supermarket, a shop, a restaurant or other parties selling the pro-
ducts to the end customers. The other model is to deliver the products through the
wholesalers and retailers. Finally, the company has recently worked with a third-party
distributor to manage the distribution of the products. However, this outsourcing
Case 29 Managing Supply Chain Complexity in a Tea Manufacturing Company 223
practice is only for OWP products that are delivered through traditional rather than
modern retail chains.
It is interesting to note that the company does not use a third-party distributor
to handle the distribution of OWP products to modern retail chains. There are two rea-
sons behind this policy. First, the margin is relatively tiny for OWP products sold
through modern retail outlets, making it financially infeasible to use third-party distribu-
tors. Second, modern retail outlets often initiate various marketing schemes such as
promotions and discounts, making it difficult for third-party distributors to have
customized deals.
Market Demand
Orders coming from wholesalers and retailers are affected by a number of factors.
First, price increases are set by the company. As mentioned above, the company
announces a price increase two weeks prior to the actual increase date. This enables the
wholesalers and retailers to carry out forward buying. Orders tend to be high within two
weeks prior to the price increase, and then drop for some time after the increase. Second,
orders tend to be quite high in anticipation of demand increases due to such events as
religious celebration days and New Year.
In reality, the price increases set by the company do not really affect final consump-
tion. Increased orders are not because of an increased demand from the consumers, but
only to respond to the price increases from the factory. Thus, the increase in orders from
wholesalers and retailers only happens temporarily and then will drop to a level below
average for some time after a price increase. As a consequence, the retailers and whole-
salers hold larger inventories temporarily. For New Year celebrations and other events,
there is normally a real increase in demand from the consumers.
Figure 1 Four Types of Distribution Channels for Tea Products Produced
by Tehindo
Sales center
Consumers
Sales center
Consumers
Retailers
Sales center
Consumers
Retailers
Wholesaler
Sales center
Consumers
Retailers
Wholesaler
Distributor
224 Part 5 Integration Issues
Unlike traditional market outlets such as small food sellers and groceries, promotional
activity is a norm for modern retail chains. Retailers like Carrefour, Giant and Alfa often
launch promotional events (such as buy two, get three; and prize drawings). Obviously,
such promotional activities can increase sales of tea products to the consumers. However,
the increase in demand would result in shortages if any member of the supply chain is
not ready to respond.
In terms of sales volume, Goteh by far outperforms Fteh. As mentioned above, Goteh
is mainly sold through the traditional market, while Fteh is mainly sold through modern
retail chains. Table 2 shows comparisons of sales of Fteh through the modern retailers
and the total for East Java. It is obvious from the table that the sales of Fteh through
modern market outlets account for a very large percentage of sales. As a consequence,
the dynamic of orders to sales centers and factories is very much affected by promotional
activities conducted by these modern outlets.
The Second Meeting
On August 15, 2008, the managers were engaged in another meeting. The issue of
product variety once again became a hot topic. The marketing manager showed sales
data of the two types of products, Goteh and Fteh. A newly appointed supply chain
manager attended the meeting. There was a discussion on whether or not the company
should reduce the product variants of the fruity tea.
Discussion Questions
1. Make a diagram showing the supply chain configuration of Tehindo as well as the
flow of products and information within the supply chain.
2. Compare the bottled Goteh and Fteh in terms of challenges in managing their supply
chain processes.
Table 2 Comparison of Fteh Sales in the East Java Region through Modern
Market Outlets vs. Total Sales for 2006
Fteh Flavors Annual sales through modern markets
Annual sales total for
East Java
APP 17,512 41,222
LMN 9,994 18,900
STR 11,525 30,085
GVA 15,404 35,425
ORG 8,764 26,125
BLC 13,612 33,852
FSN 8,915 37,405
BLS 7,007 35,240
XTR 10,685 41,436
Case 29 Managing Supply Chain Complexity in a Tea Manufacturing Company 225
3. Discuss the causes of temporary demand (and order) increases in this supply chain.
4. If you were the supply chain manager of this company, what would be your sugges-
tions in the second meeting?
5. How does information distortion happen in this supply chain, and what would be
your suggestions to reduce it?
6. Discuss the advantages and disadvantages of vertical integration and outsourcing for
Tehindo.
226 Part 5 Integration Issues APUS Assignment
Rubric
Undergraduate Level
300-400
EXEMPLARY
LEVEL
4
ACCOMPLISHED
LEVEL
3
DEVELOPING
LEVEL
2
BEGINNNIG
LEVEL
1
TOTAL
POINTS
FOCUS/THESIS Student exhibits a defined
and clear understanding of
the assignment. Thesis is
clearly defined and well
constructed to help guide
the reader throughout the
assignment. Student builds
upon the thesis of the
assignment with well-
documented and
exceptional supporting
facts, figures, and/or
statements.
Establishes a good
comprehension of topic
and in the building of the
thesis. Student
demonstrates an effective
presentation of thesis, with
most support statements
helping to support the key
focus of assignment.
Student exhibits a basic
understanding of the
intended assignment, but
the thesis is not fully
supported throughout the
assignment. While thesis
helps to guide the
development of the
assignment, the reader
may have some difficulty in
seeing linkages between
thoughts. While student
has included a few
supporting facts and
statements, this has
limited the quality of the
assignment.
Exhibits a limited
understanding of the
assignment. Reader is
unable to follow the logic
used for the thesis and
development of key
themes. Introduction of
thesis is not clearly
evident, and reader must
look deeper to discover
the focus of the writer.
Students writing is weak
in the inclusion of
supporting facts or
statements.
CONTENT/SUBJECT
KNOWLEDGE
Student demonstrates
proficient command of the
subject matter in the
assignment. Assignment
shows an impressive level
of depth of students ability
to relate course content to
practical examples and
applications. Student
provides comprehensive
analysis of details, facts,
and concepts in a logical
sequence.
Student exhibits above
average usage of subject
matter in assignment.
Student provides above
average ability in relating
course content in
examples given. Details
and facts presented
provide an adequate
presentation of students
current level of subject
matter knowledge.
The assignment reveals
that the student has a
general, fundamental
understanding of the
course material. Whereas,
there are areas of some
concerning in the linkages
provided between facts
and supporting
statements. Student
generally explains
concepts, but only meets
the minimum requirements
in this area.
Student tries to explain
some concepts, but
overlooks critical details.
Assignment appears
vague or incomplete in
various segments.
Student presents
concepts in isolation,
and does not perceive to
have a logical
sequencing of ideas.
CRITICAL THINKING
SKILLS
Student demonstrates a
higher-level of critical
thinking necessary for 300-
400 level work. Learner
provides a strategic
Student exhibits a good
command of critical
thinking skills in the
presentation of material
and supporting
Student takes a common,
conventional approach in
guiding the reader through
various linkages and
connections presented in
Student demonstrates
beginning understanding
of key concepts, but
overlooks critical details.
Learner is unable to
approach in presenting
examples of problem
solving or critical thinking,
while drawing logical
conclusions which are not
immediately obvious.
Student provides well-
supported ideas and
reflection with a variety of
current and/or world views
in the assignment. Student
presents a genuine
intellectual development of
ideas throughout
assignment.
statements. Assignment
demonstrates the
students above average
use of relating concepts by
using a variety of factors.
Overall, student provides
adequate conclusions,
with 2 or fewer errors.
assignment. However,
student presents a limited
perspective on key
concepts throughout
assignment. Student
appears to have problems
applying information in a
problem-solving manner.
apply information in a
problem-solving fashion.
Student presents
confusing statements
and facts in assignment.
No evidence or little
semblance of critical
thinking skills.
ORGANIZATION OF
IDEAS/FORMAT
Student thoroughly
understands and excels in
explaining all major points.
An original, unique, and/or
imaginative approach to
overall ideas, concepts,
and findings is presented.
Overall format of
assignment includes an
appropriate introduction (or
abstract), well- developed
paragraphs, and
conclusion. Finished
assignment demonstrates
students ability to plan and
organize research in a
logical sequence. Student
uses at least of 5-7
references in assignment.
Student explains the
majority of points and
concepts in the
assignment. Learner
demonstrates a good skill
level in formatting and
organizing material in
assignment. Student
presents an above
average level of
preparedness, with a few
formatting errors.
Assignment contains less
than 5 resources.
Learner applies some
points and concepts
incorrectly. Student uses
a variety of formatting
styles, with some
inconsistencies throughout
the paper. Assignment
does not have a
continuous pattern of
logical sequencing.
Student uses less than 3
sources or references.
Assignment reveals
formatting errors and a
lack of organization.
Student presents an
incomplete attempt to
provide linkages or
explanation of key
terms. The lack of
appropriate references
or source materials
demonstrates the
students need for
additional help or
training in this area.
Student needs to review
and revise the
assignment.
WRITING
CONVENTIONS
(GRAMMAR &
MECHANICS)
Student demonstrates an
excellent command of
grammar, as well as
presents research in a clear
and concise writing style.
Presents a thorough,
Student provides an
effective display of good
writing and grammar.
Assignment reflects
students ability to select
appropriate word usage
Assignment reflects basic
writing and grammar, but
more than 5 errors. Key
terms and concepts are
somewhat vague and not
completely explained by
Topics, concepts, and
ideas are not coherently
discussed or expressed
in assignments.
Students writing style is
weak and needs
extensive understanding of
word usage. Student
excels in the selection and
development of a well-
planned research
assignment. Assignment is
error-free and reflects
students ability to prepare
a high-quality academic
assignment.
and present an above
average presentation of a
given topic or issue.
Assignment appears to be
well written with no more
than 3-5 errors. Student
provides a final written
product that covers the
above-minimal
requirements.
student. Student uses a
basic vocabulary in
assignment. Students
writing ability is average,
but demonstrates a basic
understanding of the
subject matter.
improvement, along with
numerous proofreading
errors. Assignment
lacks clarity,
consistency, and
correctness. Student
needs to review and
revise assignment.
USE OF COMPUTER
TECHNOLOGY/
APPLICATIONS
Student provides a high-
caliber, formatted
assignment. Learner
exhibits excellent use of
computer technology in the
development of
assignment. Quality and
appropriateness of stated
references demonstrate the
students ability to use
technology to conduct
applicable research. Given
assignment includes
appropriate word
processing, spreadsheet
and/or other computer
applications as part of the
final product.
Assignment presents an
above-average use of
formatting skills, with less
than 3 errors. Students
has a good command of
computer applications to
format information and/or
figures in an appropriate
format. Student uses at
least two types of
computer applications to
produce a quality
assignment.
Student demonstrates a
basic knowledge of
computer applications.
Appearance of final
assignment demonstrates
the students limited ability
to format and present data.
Resources used in
assignment are limited.
Student may need to
obtain further help in the
use of computer
applications and Internet
research.
Student needs to
develop better formatting
skills. The student may
need to take additional
training or obtain help
from the Educator Help
Desk while preparing an
assignment. Research
and resources presented
in the assignment are
limited. Student needs
to expand research
scope. The number of
formatting errors is not
acceptable.
