The Case of Company X Supply Chain Woes!

The facts of this case are real, but identifying details have been withheld to protect the companies involved. The goal is to spark conversation about the underlying truths that hinder the value delivery expected from ongoing businesses to their key stakeholders: shareholders, employees, consumers, government, and the broader economy.

While supply chain issues are often examined with an outward lens, addressing external factors, meaningful improvement also requires a deep understanding of internal, domestic supply chain concerns. The global disruptions caused by COVID-19 have highlighted vulnerabilities in import-dependent supply chains, but what about the everyday risks facing domestic supply chains?

This mini case focuses specifically on domestic supply chain challenges within Trinidad and Tobago, aiming to shed light on critical issues that must be addressed to enhance resilience, operational efficiency, and value delivery.

Scenario: The Case of Company X Supply Chain Woes!

Company X sells Christmas ornaments. They have been in business for over three years and have demonstrated significant sales and marketing performance, enabling them to receive financial support from local banks. As company X begins to develop plans to scale its business model, which currently sees company X buying Christmas ornaments from a local manufacturer and reselling said ornaments. Their sales and marketing performance began to decline over a 2-month period, prior to the Christmas season. The company’s poor performance has led to customer satisfaction and poor cashflow challenges, which negatively impacted its financial leverage.

Company X was asked to justify their poor performance, which led to the discovery of dwindling inventory stockpiles, poor management of lead time for reorder and poor communication with their supplier. Company X can be classified as a small enterprise trading with a medium enterprise. The poor performance of company X is attributable to supply chain inefficiencies guided by the medium enterprise inability to manage effective capacity and seasonality. The inability to manage production schedules and output to meet small enterprises’ demand results in the collapse of services offered to Company X’s market. Despite being a B2B customer of the medium enterprise, company X will have to wait until the medium enterprise prioritizes production of their order. Given the inefficiencies in the medium enterprise, they too will have high back orders for each of their product offering and would manufacture based on their order priority of multiple items and not based on the order priority of company X single item.

Sales Data for Company X (Last 4 Years)

Dashboard 1

Specific Risks Company X Faces When Working with the Local Manufacturer

1. Supply Chain Disruption: The local manufacturer’s production priorities do not align with Company X’s demand, resulting in inventory shortages and delayed deliveries.
2. Operational Dependency: Company X is heavily reliant on a single supplier, creating a concentration risk that could collapse the business in the event of supplier failure.
3. Limited Production Capacity: The manufacturer’s limited production capacity and prioritization of multiple clients reduce the availability of Company X’s required products.
4. Lead Time Mismanagement: The manufacturer’s inability to manage lead times for reordering affects Company X’s ability to meet customer demand on time.
5. Cash Flow Constraints: Delayed sales due to inventory issues reduce Company X’s cash inflow, leading to financial pressure from creditors and limited working capital.
6. Reputational Damage: Customer dissatisfaction caused by unfulfilled orders or delayed deliveries may damage Company X’s brand image and lead to loss of clients.
7. High Backlog Risk: The manufacturer’s backlog of orders results in delayed production for Company X, impacting their seasonal sales cycle, especially critical during the Christmas season.
8. Supplier Prioritization Risk: Company X’s orders are deprioritized since the manufacturer focuses on multiple product lines, further increasing order fulfillment delays.

This bottleneck hinders the growth of both small and medium enterprises, ultimately reducing the value created for all stakeholders. If a small enterprise successfully builds capacity, what happens to the medium enterprise? Addressing this question requires removing fear and fostering collaboration and competition for the benefit of the entire economy.

In developing markets, it is critical to cultivate an economy that allows businesses of all types and sizes to scale effectively. Scaling can only occur within a dynamic and competitive market and production environment. Without such an environment, market leaders may stifle competition and hinder the creation of additional value.

It is essential to recognize that small enterprises often emerge to serve underserved segments of the market. Ignoring their potential or obstructing their growth undermines the overall economic ecosystem. To unlock sustainable value, every business must be empowered to thrive and innovate within a fair and supportive market framework.

Below you will see 2 diagrams, Profit by Quarter and Inventory by Month. One would come to realize that the profits of company X are dictated by the readiness of inventory for supply and sale to the market. One could also realize that inventory levels fluctuate at specific time periods of the year, indicative of seasonal spikes and the manufacturers’ inability to cope with changes in demand. If this continues, this downward trend will cause Company X to continually shrink its profit margin, leading to the closure of Company X. The local manufacturer, on the other hand will continue with business as normal with no incentive for process and supply chain management improvement.

Dashboard 2

Alternative Solutions for Company X

Scenario 1: Diversification of Suppliers

• Action: Identify and establish relationships with additional suppliers (local, regional, or international) to reduce dependency on a single manufacturer.
• Benefits:
  • Greater flexibility in sourcing products.
  • Reduced reliance on one supplier’s production schedule.
  • Improved lead times and reduced risk of supply chain bottlenecks.
• Challenges:
  • Higher initial cost to identify and onboard new suppliers.
  • Possible increase in procurement complexity and logistical coordination.
  • Supplier qualification and quality assurance may require more effort.

Scenario 2: Vertical Integration

• Action: Invest in the development of an in-house production unit or establish a joint venture with a local manufacturer.
• Benefits:
  • Direct control over production scheduling and capacity.
  • Improved lead times and better customer satisfaction.
  • Long-term cost reduction as dependence on external suppliers decreases.
• Challenges:
  • High capital investment required to establish in-house production.
  • Potential need for technical skills and operational capacity development.
  • Risk of operational inefficiencies if production processes are not properly managed.

Scenario 3: Demand Forecasting and Improved Inventory Management

• Action: Utilize demand forecasting models and implement a just-in-time (JIT) inventory system to optimize reorder points and lead times.
• Benefits:
  • Improved cash flow by reducing excess inventory.
  • Enhanced ability to anticipate demand surges and place timely orders.
  • Better alignment between production schedules and seasonal demand peaks.

• Challenges:
  • Requires accurate data collection and demand forecasting models.
  • Dependent on the responsiveness and agility of the local manufacturer.
  • Potential for stockouts if demand forecasts are inaccurate or if lead times are not met.

Although this discussion focuses on private enterprise, we cannot ignore the role of government regulation, needed to create stimuli for change. This brings us to a few questions that may not have clear answers;

• Which companies should move to the next level of their development to allow smaller enterprises to scale? A market leader may be comfortable in their position, “Big Fish in Small Pond”, but is this the best formula for a developing economy in need of foreign direct investment?
• How are we going to create a revolving door of growth and development for SMEs within Trinidad and Tobago and, by extension the Caribbean region? Are our companies practicing standards that will lead to a sustainable business environment? What are the standards that will lead to such an environment and who is taking account of this?

Summary Company X’s decline in sales can be attributed to supply chain inefficiencies and over-reliance on a single supplier. The risks faced by the company include operational dependency, cash flow constraints, reputational damage, and supplier prioritization challenges. To overcome these issues, Company X should consider diversifying suppliers, pursuing vertical integration, or adopting demand forecasting and inventory optimization strategies. Each scenario presents its own set of benefits and challenges, but a combination of these approaches may offer the most effective solution for sustainable growth and competitive advantage. The significant contribution of this mini-case is larger than the two companies involved and seeks to examine the rudimentary functions of Trinidad and Tobago’s business environment.  No amount of supply chain management techniques can help a company that exists in an environment that is not supportive. The conversation places focus on the value of an enabling environment, one that has policies and regulation to foster economic prowess and the promotion of innovative enterprise.