Explain the advantages KM and Plexet would receive from implementing an inventory management system.
View as Text/ 2Drop Box #2: Global Supply Chain Management and PlanningSigned, sealed and delivered?Plexet is a mid-sized manufacturing firm located in Auckland, New Zealand. The companyproduces a range of plastic containers that includes their flagship product range, Goodseal. TheGoodseal brand includes a range of plastic food storage containers, designed to be sold toretailers and grocery stores for home use. The containers are sold in 3 and 6 packs, in threedifferent sizes: 0.25L, 0.5L and 1L. They are typically marketed to consumers for food storage inthe refrigerator or freezer. Currently, Plexet has achieved a 9 percent annual sales growth overthe past five years. Within the manufacturing plant, the company is running three shifts at fullcapacity, although the plastic molding equipment is running at only 58 percent of its optimalproduction capacity. Production levels fluctuate frequently, and Plexet adjusts its labour schedulearound their forecasted sales demands. The sales manager is concerned about sluggish sales overthe past six months, and is aware that manufacturing targets are based on the recent salesforecasts. Having an excess of product is of concern with Plexet management. Therefore,increasing production is not a strategy considered to help boost quarterly sales targets. Instead,Plexet is considering offering a discount to their suppliers, as well as adopting a new marketingstrategy that will offer consumers coupons to buy one Goodseal product and receive a 3 pack of1L containers free.Plexet do not receive as many orders for the 1L Goodseal container from their suppliers as theydo for other container sizes. As a result, Plexet has decided to discontinue the 1L product andfocus manufacturing efforts on the more popular sizes. This will enable the manufacturing plantto replace the 1L molds with 0.25L and .05L components. This is may help alleviate the low 58percent rate of production because there will be more equipment to handle the production of thetwo remaining product lines. Managers believe this will increase their production levels. Thecoupon strategy is designed to help move some of the obsolete 1L product from their inventory,in addition to retaining consumer loyalty with the smaller sized products. The manufacturer willimplement the sales and production strategies over the next fiscal year.What is promising for Plexet is a recent order from Chinex, an exporting agent that sells toChina. The agreement stipulates that Plexet will ship 25,000 cases of the entire Goodseal line toChinex. This could not have come at a better time, because the order will be placed in time tomeet Plexet’s quarterly sales target. To expedite the sale, Chinex has been offered a significantdiscount. Chinexhas agreed to send payment within seven business days, and pay by letter ofcredit from a reputable Australian bank.Meanwhile, back at the retail storePlexet has a reliable supplier relationship with a large retail chain, KiwiMart (KM). The head ofpurchasing at KM acquired 4000 cases of containers this quarter at a 4 percent discount fromPlexet, but has sold only 1800 over the last two quarters. She decided that KM’s in regionsoutside of Auckland would also benefit from the discounted price, and has sold 1800 to them. Inaddition, she has sold 400 cases to a wholesaler at cost, with a negotiated deal to buy them backat a 3 percent premium within 90 days if KM needed the supply. This has helped the other KM’sthroughout the country, as well as solved any inventory issues with the Auckland KM. The planis for the Auckland KM to discount 1000 cases for a special in-store promotion.Soon after the deal with Plexet had been negotiated, Chinex contacted the head of KM’spurchasing department. They offered a significant 7 percent discount on 5000 cases of assortedGoodseal products. The deal was far too good to be ignored and KM accepted the deal. The salesdepartment contacted Plexet and cancelled their next three orders. KM received the Chinexproducts over a month late.Unfortunately, the purchasing manager was unaware of the situation on the ground in the localKM. The shelves holding the Goodseal line had an ample supply of the 1L six packs, but noother size was on the shelf. Worse yet, Plexet’s competitors were stocked next to the Goodsealline, and had a full line of product sizes and quantities per pack.What’s the problem?Plexet is under the assumption that they have a sales crisis. Forecasted demands are higher thantheir current rate of sales. They have decided to help resolve this by adjusting their product line,and adapting their production line to manufacture more products that sell faster. Offeringcoupons would help boost sales and consumer loyalty. The purchasing department at KMbelieves they have addressed a potential inventory crisis, are secure in the amount of supply theyhave acquired, and have perhaps even boosted their bottom line through the recent acquisition ofthe cheaper Goodseal product from Chinex.Case Study Discussion Questions1a)What is wrong with the Current KiwiMart supply and inventory system?b)Explain how conducting an organized and systematic sourcing process would benefitthe purchasing department at KiwiMart (KM).2.What form of partnership would help improve both KM and Plexet’s supply chains?3.How would Plexet benefit from adopting a JIT (Just in Time) approach to production?4.Explain the advantages KM and Plexet would receive from implementing an inventory management system.
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