Supply Chain Configuration
The Tehindo supply chain begins right at the tea plantations, from where the tea leaves are picked and transported to the factory for manufacturing into jasmine tea and fruity flavor. The final products are transported to wholesalers, who then sell them to retailers. The retailers then sell the final product to the customers.
The problem with this communication channel is that there is no responsible entity in each category.
Supply Chain Management Challenges
According to the case study, the two products that generate more for the company include the Goteh and Fteh types of tea. Each of these products experiences a unique set of challenges in managing its supply chain processes. The Goteh has limited product variants, yet its sales only rely on traditional promotional events through modern market outlets. Another challenge is the high levels of inventory in the supply chain. This carries the risk of overstocking the product. Moreover, most of the bottles upon which Goteh tea products are sold belong to the return glass bottle (RGB) category. All the RGB products are affected by regular shortages when it comes to returning them to the factory for repackaging. On its part, the Fteh product has a large number of variants, which sometimes prove challenging when it comes to packaging.
Causes of Temporary Demand Increases
The company has a policy of announcing price increases two weeks before the launch date of the product. This prompts wholesalers and retailers to carry out forward buying within two weeks. In addition, festivities in Indonesia are usually characterized by increased consumption of tea, which temporarily shoots up the prices of the commodity.
Suggestions from the Supply Chain Manager
The use of technology will enhance distribution as it would help to track the journey of the products up to the end user. This way, the company will be able to keep an inventory of how its products perform. Customers should be able to obtain the products at their nearest stores without having to travel long distances in search of the same. A direct messaging app should be availed that customers should use to report feedback and inform the organization of any existing distribution lapses in their areas. Products targeted for a specific market should be outsourced. For instance, the company can seek the services of a distributor to schools. Horizontal integration will allow stores that stock excess to distribute to those that lack the products.
Supply Chain Information Distortion
The policy by the company to reduce prices a fortnight before the exact launch dates lead many wholesalers and retailers to rush buying. However, this does not correspond to an increase in demand from the customers. Although the company communicates the intended dates for product launch, there is no efficient communication concerning the feedback from customers to wholesalers and retailers. In addition, the company’s signature products, Goteh and Fteh, experience different price variations, which sometimes confuse customers and distributors. All of these contribute to distorting information that further interrupts the supply chain. To reduce this, it is significant that the company consider sharing more information and stabilizing its prices, particularly for the two primary products.
Vertical Integration
The company has more than 1,500 hectares of tea plantations that use its extracted tea. This huge land size assures it of bulk supply, hence creating economies of scale. It eliminates costs associated with purchasing the product from middlemen. Moreover, the more than 150 sales offices are centers of profits that also helps to keep many people in employment. From the way they are distributed across Indonesia, the company ensures that its presence is felt in all corners of the country. However, if any of the sales offices are caught up in any scandal such as child labor, the whole company bares the blame. This will not only affect its reputation but also affect its profit margins adversely. In addition, online shopping is rapidly gaining track. This means that this vertical integration model will be rendered obsolete with time.
Outsourcing
By outsourcing some segments of its supply chain, Tehindo will be left with ample time to focus on its core mandate of producing the finest tea. This will also ensure that it benefits from different experts who have more experience in supply chain management. In addition, this removes some responsibilities it directly has towards its customers, hence reduction of costs. However, outsourcing also means surrendering some of the organization’s mandates to other entities. Unfortunately, some of these mandates might not well be performed to the satisfaction of customers. This ends up ruining the reputation of the organization.
References
Christopher, M. (2016). Logistics & supply chain management. FT Publishing International.
Godsmark, J. R. (2019). Logistics outsourcing handbook: A step-by-step guide from strategy through to implementation. Kogan Page.
Li, W., & Chen, J. (2020). Manufacturer’s vertical integration strategies in a three-tier supply chain. Transportation Research Part E: Logistics and Transportation Review, 135.
Yu, Y., & Xia, T. (2021). Analysis of cold-chain service outsourcing modes in a fresh Agri-product supply chain. Transportation Research Part E: Logistics and Transportation Review, 148.