Supply Chain Management W’Up Bottlery Case Solution
1. Answers to Case Study Questions:
1. Estimation of the current Inventory level of product every month:
For the month of May, 529,078 cases were in inventory, replenished in numerous cycles depending on the demand placed by distributors. By knowing the demand by implementing VMI system, these planned trips will be optimizing the transportation. (Exhibit A)
2. Estimation of the possible impacts of implementing VMI:
The company-owned depot eliminated from the chain, which would direct the transport directly to distributors. Hence, the inventory holding reduced by 3 days. The plant’s inventory was kept at the same level to face unexpected temporary increase in demand or plant failure.(Exhibit B)
Reducing one-day inventory from distributor will give active knowledge of product needed and transportation cost will reduce because of skipping the company depot from the chain and supplying the product while knowing the actual demand from distributor’s end.
3. Estimation of the savings resulting for every scenario in the cost of inventory:
Freight charges for the month of May will be INR 10×529078 cases= INR.5290780 which is nearly INR. 5.3 million for each inventory cycle. When demand is unknown, the transportation is not used cost effectively. (Exhibit C)
For the month of May, freight charges will be approximately INR. 8 x 529,078= 4,232,624 for every cycle. More than one million savings in cost from this and optimal transportation will reduce the cost even further asholding cost’s data is not given, therefore the impact is not mentioned in the report.
4. Key Issues and Analysis:
Optimizing glass velocity was the major issue that arose in the case. The company has to decide that how much glass bottles it should purchase from the vendor and this decision was based on the information such as how much demand the company would have in future, how much glass is present in the system and the breakage estimation.
However, Rajat Mehra and his team were concerned about the implementation of Vendor Management Inventory system in which the supplier of a product would be responsible for optimizing the inventory held by a distributor.(Andreas Groning, 2007)
However, the distributors were not willing to share their information with the suppliers due to the fear that the information could be used against them. The management of the company realized that the distributors would not appreciate VMI’s idea due the loss of their jobs and roles. In addition, the sales representatives of the W’Up held a similar concern as of the distributors.The the sales representatives viewed this system as non-valuable due to the fact that if the company communicated directly with the distributor/suppliers, then their role in the business would be suppressed.(Birendra K. Mishra Srinivasan Raghunathan, 2004)
The Vendor Inventory System would enable the company to reduce its holding cost of inventory. The company would also be able to reduce the overstocking problem of the inventory by producing according to demand of the product. This process would also decrease the transportation cost by eliminating the company own depots and to distribute the products directly to the retailers.(Cristina Machado Guimara ̃es and Jose ́Crespo de Carvalho, 2012)
However, this system is difficult to implement due to the unavailability of information as the distributors are not ready to share their customers and market insight with the suppliers or manufacturers since,it would cause problems for them. Therefore, it would bedifficult to obtain the information regarding the market demand for producing a product. In addition, this process would also de-motivate the distributors and sales agents of the company to work effectively. It is expected that the distributors and sales person would not trust the company and may also not agree to follow the terms and conditions by the company. The distributor and sales people would also not agree to implement the VMI system.However, it is beneficial that the company might also lose its major distributors and sales representatives.(Se¸cil Sava¸saneril)
On the other hand, the implementation of VMI may also increase the lead time and cost for taking empties back. Moreover, the management of the company would also have to handle the unfair demand of the customers due to the increase in vertical integration.(Guillaume Marqu`es, 2008)……………
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