Learning Outcome s : 1- Develop a framework for analyzing the logistics function

Question

Learning Outcomes:

1- Develop a framework for analyzing the logistics function of the firm (Question 1 and 2)

2- Make decisions related to managing the logistics effort of the firm. (Question 3)

Case Study

NADHEEFCO is a company manufacturing cleaning products serving the grocery retailing market in Europ. NADHEEFCO currently segments its customers based on customer accounts values. The primary division is between national accounts, for which ten accounts constitute 70 per cent of sales by value, and field sales, which comprise a long ‘tail’ of more than 200 accounts that together make up only 30 per cent of sales. Due to the size of the field sales structure, a secondary classification groups accounts by channel type:

Neighbourhood retail, discount and pharmacy. NADHEEFCO recognizes the need to reduce the long customer ‘tail’ and is introducing distributors for orders below a minimum quantity. NADHEEFCO’s current approach to segmentation is summarized in the following Table

National accounts

Field sales

70 percent sales

30 pecent sales,

more than 200 accounts

10 accounts

Neighborhood retail

Discount sector

Pharmacy

Table 1: segmentation approach-current

While Nadheefco currently segments its retail customers by account size, its sales organisation has identified two significant types of buying behaviour displayed by the customer base:

volume-driven buying behaviour;

margin-driven buying behaviour.

Volume-driven customers are keen to capitalise on both product and supply chain cost savings in order to pass them on to their customers to drive volume sales. There are two variants of the volume-driven behaviour:

everyday low price (EDLP);

discount.

Retailers pursuing an EDLP strategy strive for continuous price reduction from suppliers such as Nadheefco to drive a fairly consistent, high volume of sales. This should result in a relatively stable pattern of demand in the washing and bathing sector. Discounters, on the other hand, are looking for bargains. Because they are aimed to sell products with very low prices compared to the market, which is a strategy more likely to result in a volatile demand pattern.

Margin-driven customers are keen to add value for their customers by offering a wide selection of products and value-adding services. This strategy also results in a relatively stable demand pattern in this sector.

A complicating factor when trying to deconstruct the buying behaviour of Nadheefco’s customers is that several secondary factors are used to support products in the marketplace.

Such factors include product types (e.g. premium, mid, utilitarian), product range (e.g. current products, end of lines, ‘b’ grade), merchandising requirements (e.g. category captains) and promotions strategy (e.g. roll-back, 12-week, 4-week, Hi-Lo). Promotions are by far the most disruptive of these factors. Although the promotions are generally planned well in advance with the retailers, they cause significant disruption to the supply chain operations due to the peaks and troughs in demand that they create.

Furthermore, the deeper the promotional activity the greater the volatility created and the greater the disruption to the supply chain. This has the effect of masking what is fundamentally a fairly stable demand pattern with somewhat artificial volatile demand.

Strategic alignment can only be achieved if the supply chain is aligned behind the segmentation strategy that Nadheefco has adopted. This is not currently the case with the Nadheefco supply chain. Each operation within the supply chain makes decisions or segments its customers based on the functional criteria that affect its part of the supply chain. We have called this lack of alignment ‘matrix twist’, because the matrix of business processes at each stage of the supply chain has been apparently twisted so that the processes fail to fit with each other. As illustrated in Table 2, the decision criteria for Nadheefco and its suppliers and customers change at each stage. This not only complicates material flows, but becomes a minefield if one considers it in terms of behavioral segments.

Table-2- S.C criteria

Questions

1. What does this case illustrate and What is ‘matrix twist’?

2. Explain the causes of ‘matrix twist between Nadheefco and its retail customers?

3. What actions are needed to straighten out the ‘matrix twist’?

National accounts

Field sales

70 percent sales

30 pecent sales,

more than 200 accounts

10 accounts

Neighborhood retail

Discount sector

Pharmacy

Explanation / Answer

1. The case is about the analysis of logistic function of the firm and making the decisions based on the logistic function of the firm. Here, Nadheefco is the company manufacturing the cleaning products of the grocery retailing market. They have segmented the customer base according to the values. There are two division primary and secondary division. The primary division was based on the National Account and field sales whereas the secondary division of the field sales further furcated into Neighborhood retail, discount sector and Pharmacy. There were the volume driven and Margin driven buying behavior of the customer. The segmenting strategy based on the each operations used in the supply chain. So there is difference in the strategies. This would create a twist. The matrix twist is formed from the lack of alignmemt of the functional criteria within the supply chain which affects the part of supply chain.

2. The causes of the matrix twist between Nadheefco and it's retail customers are as follows:

1. The deeper promotional activities deeper the greater the volatility created which so greater would be distruption in the supply chain.

2. EDLF strategy retail pursuing continuously for the price reduction from the supplier which is consistent in Nadheefco case.

3. The promotional activities are planned in advance which creates the the distruption in the supply chain.

3. The actions are needed to straighten out the 'matrix twist' as by reducing the factors of distribution to some specific one. this would reduce the distributive properties of the factor type. Hence would reduce the complications amongs them. The alignment should be proper as each of the factors has been specific to a particular category which may not create complication with other. The decision critera should not change at each stage by the company.

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