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The Fresh Connection: Learnings

A report submitted to
Instructor: Prof. Saral Mukherjee
Academic Associate: Ms. Jahnvi V Trivedi

In partial requirements of the course


Supply Chain Management (2015-16)

By-

Tejaswi K (14383)

On 29th February 2016

Indian Institute of Management, Ahmedabad

The Fresh Connection Game:


The fresh connection game is aimed at achieving correct strategy between the 4 departments of
purchasing, operations, supply chain management and sales so as to synergize everything and
achieve maximum ROI. All the decision variables are interconnected and we should see, what
kind of collective set of decisions give us higher ROI. I will describe the decision variables and
the causal connections it has to other decision variables and how it will affect ROI.

Relationships between different decision variables and causal loops:


Cost Leadership Strategy:
First, in category management, we have to discontinue products having lower sales and higher
variability. So discontinue C power 1 ltr and C power Pet as they have lower sales, higher
obsolescence etc. Now to be a cost leader, we cannot promise very high service levels and as
such we have to promise lower service levels and shorter shelf life, but we can provide them at a
lower cost which is what we compete on. Earlier order deadline, larger trade unit, and higher
promotions are all part of the cost leadership strategy. Having higher promotion time is also part
of the strategy so as to plan the production effectively so as to improve utilization. Priority of the
customers will be decided by the amount of sales to be done. Higher volume customers are given
higher priority than lower volume products. VMI need not be done in this case as an elephant can
be blind.
In supply chain, this will result in larger frozen period, higher lot sizes and lower safety stock for
both components and products and also production interval for each product will be higher.
In operations, this will result in higher outbound inventory and a larger warehouse for outbound
products, which would result in higher cost on outbound warehouse. At lower levels, outsourcing
is cheaper but for this strategy, we should not outsource. It would be cheaper to maintain an
outbound warehouse. We should use only one mixer, with high capacity so as to make sure that it
has high utilization and low cost. If we follow production planning, we need to run at maximum
efficiency, so we need to run only 2 bottling shifts. This would reduce the cost of employees and
also overhead costs, but service levels might suffer a little because of that. This is why, we
planned to offer lower service levels. We should choose to inflate PET bottles, as it would result
in huge cost saving in terms of inbound warehouse, but it would add time towards bottling lines,

so to improve the efficiency we need to increase the speed. We need not do SMED action as we
are following cost leadership strategy and would be doing very low responsive planned
production, changeover costs are not very high. We should invest in lower energy, smarter startups and lower water consumption so as to minimize the overhead costs and improve CO2
footprint. We should also train our employees in breakdown training, so as to improve
breakdown time and reduce it. A little preventive maintenance would go a long way in helping
this also.
In purchasing, we look for reliable suppliers who can have longer lead times, but closer to
production so as to reduce transportation costs and we should choose high quality and high
reliable suppliers, we can agree to a delivery window of around 2 days and promise late
payments to make the interest costs lower. Trade units should be large to accommodate larger
deliveries. Certification is not always, required, just enough so that our CO2 footprint matches
what we promised. We can reduce CO2 by reducing transportation costs, reducing the number of
shifts, investing in water and energy saving measures etc.
Time Responsive Strategy:
In time responsive strategy, the customer is most important and we need to have the eyes inside
the customer business to understand what is happening, so we have to choose only those
customers, who can allow VMI, and we definitely need to do VMI so as to improve our
responsiveness. Due to this, we sell only to Land Market and Food & Groceries and not to
Dominick, and then decide on which products to sell. As long as we can get high margins, we
should sell the products. We should also look at our investments, fixed costs and break-even
sales so as to not go into losses. So we should sell all the products to these two customers. To
prepare a time responsive strategy, we should promise higher service levels, higher shelf lifetime,
later order deadline, smaller trade unit and no promotions as a part of the time responsive
strategy to improve the contract index, so as to get as good contract index as possible, as we are
trying to compete on service rather than cost. Priority of customers, would be on the amount of
variability, each customer had and who is willing to pay a higher margin for the product.
In supply chain, this will result in smaller frozen period, smaller lot sizes and higher safety stock
for both components and products and also production interval for each product will be lower.
This is to be more responsive and plan more regularly based on new information supplied.

In operations, this will result in lower outbound inventory and a smaller warehouse for outbound
products, which would result in lower cost on outbound warehouse. At lower levels, outsourcing
is cheaper, so we should outsource for this strategy. We should use more than 1 mixer and each
of them of smaller capacity for this strategy to work well. If we run a time responsive factory, we
need highly responsive bottling to happen, so we need three shifts. This would increase the cost
of employees but the responsiveness would increase by a lot. We should choose to inflate PET
bottles, as it would result in huge cost saving in terms of inbound warehouse, and it would not
compromise the responsiveness. We need to do SMED action as we are following time
responsiveness strategy and would be doing very high responsive un-planned production,
changeover costs can be very high. We should invest in lower energy, smarter start-ups and lower
water consumption so as to minimize the overhead costs and improve CO2 footprint. We should
also train our employees in breakdown training, so as to improve breakdown time and reduce it.
A little preventive maintenance would go a long way in helping this also.
In purchasing, we look for reliable suppliers who have shorter lead times, but closer to
production so as to reduce transportation costs and we should choose high quality and high
reliable suppliers, we can agree to a delivery window of around 4 hours so as to be highly
responsive and to never lose time responsiveness due to unavailability in components.. Trade
units should be small to accommodate larger number of deliveries, each one small. Certification
is required, so as to reduce our CO2 footprint. We cannot reduce CO2 by reducing transportation
costs, reducing the number of shifts. We should also dual source so as to improve our ability to
get components. One of them should be a primary source can be of a slightly higher lead time
and higher delivery window person, but the dual source should be of very short lead time, low
delivery window and also very high responsiveness. This will help us greatly in ensuring
responsiveness.
Causal Loops:
Whatever strategy, we chose, we have to ensure that everything is aligned. In the Cost leadership
strategy, Higher ROI is maintained by making costs lower in all possible ways and have higher
revenues by volumes, so we are playing on higher fixed costs and lower margins and higher
volumes. So by choosing to have only 2 bottling shifts and 3-4 week frozen period, the
responsiveness of the firm decreases and also due to no change in the production plan for 3-4

weeks, shelf life decreases. Also by sending in large amounts, we decrease the transportation cost
but this also increases the cost of outbound storage. By choosing high promotion levels, we are
trying to ensure that the product does not stay for lot of time on our customers shelfs and will
quickly move, so that obsolescence levels would be lower and the cost of scraping the finished
product would be lower. In this strategy all decisions would be taken with only one important
principle in mind, whether this would reduce the overall costs for the firm or not. By increasing
the lead time, we would choose a cheaper supplier which would result in lower cost, and as we
had already planned on what to do and due to higher production frozen period, we can order
earlier and compensate for higher lead time. Production planning adherence should be high in
this strategy as we are basically changing our plan rarely and as such costs will be lower.
Number of order lines would be lower and the amount of time, a finished product stays in the
inventory will be higher here, so shelf life will be lower and outsourcing costs will be very high.
It would be much cheaper to have an outbound warehouse.

Conclusion:
To maximize the ROI, of the firm, one of the two strategies could be chosen and then applied
consistently across all the dimensions so as to have strategic alignment between all the decisions.
This requires co-ordination between all the functions and if everyone tries to run their function at
the absolute best they can then the overall strategy, might be lost because of mis-alignment of
strategies.