Question

Logistic Management

Learning Outcomes:

Develop a framework for analyzing the logistics function of the firm (Question 1 and 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.

Management process Supply chain decision Determined by

Source Which supliers? Raw material commodity type

Make Which manufacturing site? product family type

Deliver Which manufacturing order size? Hostorically a function of warehouse?

in process of being dividedby export paperwork requirements and customer account (arbitrary split)

Which customer RDC? Product type and location of store to serve.

Ehich products to which store? Demographics of the stor's catchament area, which drives layout and range decisions.

Questions

What does this case illustrate and What is ‘matrix twist’? (Marks= 4)

Explain the causes of ‘matrix twist between Nadheefco and its retail customers? (Marks= 2)

What actions are needed to straighten out the ‘matrix twist’? (Marks= 2)

Answer 1

Answer-1 This case illustrate that Nadheefco's has segmented its customers based on volume driver buying behaviour and margin driven buying behaviour.

Margin driven behaviour gives more or less stability to the demand.

But the major cause of disruption in supply chain is Volume driven buying behaviour and further it is categorised into below given sub parts as per below.

1 Every Day Low Price(EDLP)

2 Discount

Both of the above caused disruption in supply chain since these causes temporary high and low in demand and disrupts the supply chain and the main reason behind matrix twist.

Matrix twist refers to when supply chain is not aligned with customer market segmentation.

Causes for Matrix twist- Volume driven market segmentation approach of Nadheefco' which causes temporary/artificial low and high in demand and disrupts the supply chain.

Steps-

1 For volume driven market segmentation Nadheefco should focus to reduce the distance between its market and source of raw material.

2 Warehouse location should be near to both of volume driven market and margin driven market in order to reduce delivery cost and delivery time at each market.