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Analyzing and Managing Supply Chain Complexity in a Tea Manufacturing CompanyCase Study

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Managing Supply Chain Complexity in a Tea Manufacturing Company

Case Name: Managing Supply Chain Complexity in a Tea Manufacturing Company

Major Facts

Tehnido is a company that produces a renowned brand of ready-to-drink tea in Indonesia. In particular, the company has had an extensive history and experience in the tea business. It started out as a small home business in Indonesia during the 1940s. The founder of the company begun the tea business in Central Java but thereafter relocated to Jakarta with the main endeavour of capturing a greater market share after two and a half decades. Apart from its classical bottled jasmine tea, Tehnido also manufactures different kinds of fruity tea with dissimilar distribution channels.

Major Problem

The major problem is that there is an increase in the assortment and range of products; the supply chain processes of Tehnido are becoming all the more challenging and difficult to cooperate. The complexity makes it problematic to manage the supply chain.

Possible Solutions

1. Outsourcing

2. Vertical Integration

Advantages and Disadvantages of Each Possible Solution

1. The advantage of vertical integration include: the guarantee in supply and demand. The disadvantage is that it goes through a great deal of inefficiencies.

2. The advantage of outsourcing is that it is deemed as a way of concentrating on core proficiencies to explore the best abilities and skills in the market. The disadvantage is that it increases the pressure for constant enhancements.

Choice and Rationale

The choice selected is vertical integration in that the company is sure of demand and supply and at the same time encompasses inefficiencies that can be solved.



The following are some of the ways to implement the above solutions in a distinctive and more comprehensive manner:

1. Reduce product variety

2. Having third party logistics

3. Increase information sharing in supply chain


1. Make a diagram showing the supply chain configuration of Tehindo as well as the flow of products and information within the supply chain

Raw Material Suppliers

Factories Across Indonesia

Distribution Facilities

2. Compare the bottled Goteh and Fteh in terms of challenges in managing their supply chain processes

The following table illustrates the changes facing the bottled Fteh and Goteh



A great proportion of sales are done through market outlets that are modern and therefore regular promotional events presented by retailers, a short-term increase in demand comes to be a custom.

Majority or a great proportion of sales are done through market outlets that are traditional, essentially no promotional programs generated by selling outlets that can prompt a short-term increase in demand.

Numerous product variations, low volume, hard to project demand and ascertain supplying policies

Minimal product variations, a high volume, comparatively easy to project demand and ascertain supplying policies.

The empty glass bottles are taken back to the factories, which gives an indication of intricate reverse logistics activities.

All of them are one-way products. The implication of this is that there is no need for them to be returned or taken back to factories.

3. Discuss the causes of temporary demand (and order) increases in this supply chain

The following are some of the causes of a temporary increase in the demand and orders in the supply chain in question.

1. The promotional programs that are presented by retailers. Different kinds of promotional programs could be introduced and presented. Examples of these programs could be having a prize draw or providing the option of buying two and getting three. Despite the fact that it is transitory, the increase in demand is real, as it causes an increase in the actual end-user consumers (Lambert and Cooper, 2000).

2. Another cause is the increase in price that was set by Tehindo. It is imperative to note that an increase in price prompts forward buying. As pointed out in the case study, the company more often than not publicizes it two weeks before the increase. This offers sufficient time for wholesalers as well as retailers to undertake forward buying. Therefore, this implies they can purchase at the old price but retail at the new price. Different from promotional programs that instigate more consumption, the increase in price does not. The demand increase only takes place in the middle of the supply chain, whereas the demand from the end customers continues to be similar or declines (Lambert and Cooper, 2000).

3. Another cause is different occasions such as the New Year, and also religious festivities. These sorts of occasions momentarily increase the demand and also the demand is real, and not just in the middle of the supply chain. The retailers and wholesalers have a tendency of increasing their orders in expectation of the increase in demand. The scheduling of the increase in demand can be predicted, even though the extent of the increase in demand is rather ambiguous. From a marketing standpoint, a demand increase is an accomplishment. Nonetheless, if the increase is simply in the middle or center of the supply chain or the cost linked to the increase is immense, this sort of increase does not render any value to the company (Lambert and Cooper, 2000).

4. If you were the supply chain manager of this company, what would be your suggestions in the second meeting?

As pointed out in the case study, the second meeting encompasses a discussion of the notion of justifying the product range for fruit tea. One of the suggestions for the second meeting would be decreasing product range. Decreasing product range will bring about minimal time wastage for product substitution. In particular, in this industry, substitution time could be in the way of time for cleaning the mixing tank, time for altering the apparatus setting and also the time for the works to get accustomed to the new product. Technical hitches in logistics and inventory control for the raw materials as well as finished products will also decline as the range of products is decreased. Demand forecasting will make it much simpler to undertake with a minimal number of product variants.

5. How does information distortion happen in this supply chain, and what would be your suggestions to reduce it?

Information distortion is an aspect that affects and vexes any supply chain. In particular, information distortion has a tendency of increasing demand variability as the process moves up the supply chain. This is referred to as the bullwhip effect. In this particular case study, this phenomenon could take place, but the intensity is dissimilar for the two product groups, which are Fteh and Goteh. Some of the reasons as to why this takes place include the random increase in prices, which prompts wholesalers as well as retailers to undertake forward buying. Another cause is the errors in projection that result in scarcities in a number of periods followed by amplified order amount or surplus of inventory for a particular time followed by a decreased order quantity. In addition, there is also the cause that is different occasions that could increase demand in the short-term (Lee et al., 1997).

There are a number of suggestions in which information distortion could be reduced. One of these ways, particularly for this case, could be to assess the company's policy to declare an increase in price two weeks before the date of the increase. The comparatively lengthy period between the proclamation and the actual date of increase makes it possible for the retailers and wholesalers to undertake substantial forward buying. It is imperative to note that if the time gap that exists between the two is decreased, the amount and intensity of forward buying would reduce, which would result in decreased information distortion. Some of the other recommended ways of reducing information distortion takes into account decreasing the range and assortment of products, and better harmonization and sharing of information between the players within the supply chain (Lee et al., 2004).

6. Discuss the advantages and disadvantages of vertical integration and outsourcing for Tehindo

For starters, vertical integration and outsourcing are two dissimilar and contrasting approaches. In this case, the tea manufacturing company has a strong vertical integration structure. This is largely for the reason that the manufacturing facilities, the warehouses, tea plantations, the regional offices and centres for sales are all run by companies within the same holding. It is only in the recent periods that these centres have gotten into outsourcing practices.

There are advantages and disadvantages to vertical integration. The key benefit of vertical integration lies with the guarantee in supply and demand. For instance, the tea plantation will not be able to supply tea leaves to other entities and parties within the supply chain if the manufacturing facilities within the group are not able to engage the supply anymore. In contrast, strong vertical integration has its downsides as it is cause to undergo inefficiencies. More so, the constant improvement essence would not be increasing or sustaining as every party of the supply chain has the feeling that they are working in a steady and secure setting,… [END OF PREVIEW]

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