CASES

STUDIES – PLANNING, COORDINATION AND CONTROL IN THE SUPPLY CHAIN

Short case (1) : Globalcast

Globalcast was one of the world’s largest manufacturers of metal and plastic moulded
components to almost every industry, including automotive, consumer durables,
telecommunications, computers, power tools, etc. With over 100 manufacturing facilities,
it operated on every continent, usually in areas of established or emerging
industrialization. In Europe there were large factories in the UK, Germany, France, Spain
and Italy, and smaller ones in Scandinavia, Austria, Turkey and Israel. Every factory was
considered to be a semi-autonomous profit centre and was headed up by a general
manager. Each reported to a regional manager of one of the divisions (for example,
Plastics Division). New business was generated both by national marketing and by wordof-
mouth recommendations from existing customers, but most orders were for regular
repeat business or for new designs from existing customers. The role of the small
technical sales team at each factory was to follow up enquiries with technical advice visits
to the customer, followed by the preparation of quotations. In many cases, Globalcast
provided design assistance to the customers. It was the role of the advisor to suggest
ways of simplifying the overall design which would be cheaper for the customer, whilst
being fast, easy and profitable to produce in the factory. Mould costs were calculated and
quoted too, and in most cases the customer would pay for the moulds from the outset,
retaining ownership. Globalcast organized the purchase of the moulds, costing up to £50
000 each, and could make a small profit on this activity.
In the late 1990s, the market started to change rapidly. First, major customers such as
Hewlett Packard, Dell, Ford, GM and Black and Decker started building new factories in
developing countries. These were being established both to exploit the benefits of lower
wages and overheads, and as market-entry points for these rapidly developing
economies. In most cases, however, large proportions of their output would serve existing
markets throughout the world. Because Globalcast was one of the most important
suppliers (only about five competitors had worldwide coverage), it was often encouraged
by its customers to establish supply factories in the same regions, ideally on adjacent
sites. Customers explained that business was, in part, being transferred to their new sites,
and since Globalcast had been selected as a preferred supplier, it had the opportunity to
benefit from ongoing business development and growth. Attractive forecasts were
provided, but not guaranteed. ‘Partnerships’ would be established where Globalcast had
the benefit of sole-supplier status to the customer’s local plant.
The second change was the trend for customers’ products to be of globally standard
designs. This allowed buyers to purchase components for their many factories around the
world, from virtually any approved supplier anywhere. Therefore they were in a powerful
position to restrict the number of suppliers, as well as demanding a single global, low
price. For Globalcast this provided a new set of problems; its costs had varied widely
around the world, depending mainly on local labour and overhead costs. Selling prices
had varied according to costs and local commercial conditions, but detailed costs of
production had never been disclosed to customers. However, customers would now be
able to ‘shop around’ and find the lowest Globalcast price for themselves. At the same
time, each Globalcast general manager had tried to defend his or her business, even if

Pr. P. FENIES - The needs of coordination in Supply Chain

that involved buying in the components from other company sites and adding a profit
before selling to the customer. This was now becoming too obvious to large customers.
The third significant market trend was that customers increasingly wanted suppliers to do
more assembly (‘value-added’) work. At its simplest, this could involve simply snapping
together two parts. Alternatively, it could require complex purchasing, assembly and
testing of major sub-assemblies. To do this, Globalcast would need to invest in assembly
lines, testing equipment, storage, component and finished goods inventory, and systems
to support purchasing and logistics. Specific approved suppliers were usually dictated by
customers. Lead times from these global suppliers could be up to 12 weeks. Customers’
initial delivery schedules were often stable and close to forecast levels, but could vary
wildly as competitive forces affected customers’ sales. But, overall, this type of work did
appear commercially attractive, typically bringing in up to 10 times the revenue of a simple
moulded part. The opportunity to become a ‘first-tier’ supplier to some of the world’s
leading manufacturers was hard to resist. Indeed, supplying global customers was the
mainstay of the strategic plan for the new decade.


Questions

1. Evaluate the company’s relationships with its large global customers. What does this
imply about Globalcast’s potential to support its customers’ requirements in
intensely price-sensitive global markets?

2. Would you describe Globalcast’s strategic supply chain management decisions as
more proactive or reactive, and why?

3. Are there other ways in which the company could organize itself to meet the
challenges and market trends described in the case?

Pr. P. FENIES - The needs of coordination in Supply Chain

Short case (2) : Consolidated value from GP

The GP Group is a global trading and shipping company based in Bangkok. A family firm,
it was established 125 years ago in Burma and comprises over 20 companies worldwide,
specializing (amongst many other things) in commodity trading, ship chartering and ship
management. Kirit Shah, the Chief Executive Officer and owner of the Group, explains the
size of their trading operations:
‘We charter about 200 ships a year, so at any given time we have 20 or 30 ships
somewhere in the chain between loading, sailing and discharging.’
One key capability of the Group is filling ships by consolidating cargoes. Mr Shah
explains:
‘We consolidate lots of small buyers into filling as large a vessel as possible. Let me give
an example. Take soya bean meal for India. A typical Indian seller is capable of delivering
between 500 and 1000 tons. However, the ship is going to load 20 000 tons, so we put
together a dozen or so sellers and five to seven buyers at its destination. So what we have
effectively done is consolidate a region’s supply and consolidate a destination’s demand.
We manage this by having our own facilities at the port. We have our own warehousing,
we have our own berths, and we carry it on our chartered ships. All the cargo is
consolidated at our warehouse in the port and we ship it only when it is ready in terms of
quantity and quality. That way we have been able to control shipments better than other
traders. It takes a great deal of planning to have a shipment ready by a certain date. From
experience we know we have to “call forward” (give notice for) the goods from different
sellers at different times. For some suppliers you have to call forward the goods 30 days,
others 15 days or 10 days, depending on how well organized they are. We have to make
sure the shipment goes on time because there are large penalties for lateness. This is not
easy because we are dealing with originators and purchasers from around the world.’
The GP Group also helps suppliers in developing countries to meet the exacting
standards imposed by many buyers. ‘The quality of goods such as rice is set by the
purchaser, usually in a developed country. However, it is very difficult for a poor farmer,
600 miles from a port, to meet those standards,’ explains Mr Shah. ‘So we try to help
producers to do this. What typically happens in less developed countries is that sellers
have to be very careful about how much they spend. As a result they have a tolerance for
imperfection. But purchasers, such as a large Japanese food company, always want
things 100 per cent right. So, for example, when packing the rice, the supplier may use
100-gram polypropylene bags when he should have used 110-gram bags, just to save 15
cents a ton. Instead of double stitching the bags he single stitches them, again saving 15
cents a ton. When printing the bags he did not use fast enough colours, so with multiple
handling those marks are erased; once again he saved 15 cents. The problem is that a
buyer would readily pay $300 for top quality rice. But for the same quality rice from India or
Indonesia, Vietnam, parts of Africa or parts of the former Soviet Union, he will only pay
$270, 10 per cent less. Why? Because although it is good rice, when he buys from India
he buys a whole horde of uncertainties. Will the shipment be on time? Will every bag be
perfect? The markings correct? The bags stitched correctly and the weight of each bag

Pr. P. FENIES - The needs of coordination in Supply Chain

correct? These uncertainties add to my selling cost, so generally I have to sell at a
discount. Also, I have to handle it more and spend more money at the destination putting
things right. As a result the seller might get $30 a ton less for something on which he had
tried to save 50 cents.
‘This is an area in which we believe our company helps. We charge our buyers $280 for
the rice. Some buyers will pay this when they have experienced the product, our delivery
and reliability, because we control the port and the warehouse and we have people in the
chain supervising at various stages, which all costs a little money. But, they will pay us
$10 above the market price. This allows me to pay $5 to my supplier not to take the
shortcuts and it allows me to make $5. This is how I can add value to the supply chain.’


Questions

1. What are the important tasks which the GP Group has to get right if it wants to
maintain the performance of its ‘consolidating’ business?

2. How does the GP Group add value to each stage of the rice supply?

Pr. P. FENIES - The needs of coordination in Supply Chain

Short case (3) : Bullwhip effect Evaluation

Q1 Evaluate the bullwhip effect for this planning matrix

Q2 What are the solutions for the Supply Chain Manager Manufacturer to erase Bullwhip
effects ?

Pr. P. FENIES - The needs of coordination in Supply Chain