Question

Case Study: Supply Chain Trends The Do-Green Solar Systems case addresses challenges faced by a Canadian manufacturer as a result of the CUSMA trade agreement. As you read through the case, think abou the challenges, risks and complexities in changing their supply chain from North Americanto Internationalmarkets. Do-Green Solar Systems Taylor Douglas, V.P of Do-Green Solar Systems, was evaluating the strategic position of the company. With the new Canada-United States-Mexico (CUSMA) agreement in place and the uncertainty around future trade with the United States Taylor was pondering the future direction of Do-Green. Do-Green’s History Taylor grew up in the family business. Established in 2000 Do-Green began as a family run electrical contracting company. Their core business focused on providing residential electrical contracting for new home construction as well as renovations and electrical upgrades to existing homes. As the business grew Taylor began to deal more and more with requests from customers for solar power options for their homes. Taylor realized that the market for residential solar power was growing. Supply agreement/partnership attempts with solar component suppliers proved to be unreliable. It was at that point Taylor decided to purchase a facility to begin manufacturing solar power components for residential use. In 2004 Do-Green Solar Systems was formed. Do-Green was now involved in both the manufacture and installation of solar power systems for residential use. The business saw steady growth through 2006. Do-Green had established a lucrative business niche for itself. New Opportunities At the same time that Do-Green was establishing itself, Canadian’s saw the expansion of big box home improvement retailers and the proliferation of the “do-it-yourself” craze. In 2008 Taylor Douglas approached several home improvement retailers and in 2009 Do-Green signed a supply agreement with a big box home improvement retailer to stock their products in 25 stores across Ontario. People could now purchase and install their own residential solar power systems and Do-Green’s business profile evolved into that of a manufacturer/distributor. To meet the increased production demands Do-Green acquired a local mid-size manufacturing facility. For the next two years Do-Green settled into its new business model as installer, manufacturer and retail distributor of solar power systems for residential use. Do-Green Becomes Leaner and Looks to New Markets Not one to rest on past successes, Taylor began to look at ways to grow the business. It was now 2011. The Canadian dollar was at par with the U.S. dollar and Taylor wanted to break into the U.S. market. To do that additional capacity needed to be purchased or Do-Green needed to find ways to run their operation more effectively and efficiently. Taylor decided to look within the company for capacity improvement opportunities. Do-Green increased their capacity through several initiatives. They invested in an ERP system which allowed then to increase productivity and fully integrate the ordering and procurement process. Supply chain visibility increased. Do-Green could now receive replenishment orders from retailers directly into their system. This enabled them to reduce raw material, work in process and finished goods inventories by a combined 20%. Do-Green also implemented lean process integration throughout their operation. This accounted for an additional 15% increase in production capacity. Once fully implemented these initiatives accounted additional capacity of 30%. Delivery times were reduced from three days to one. With the newly found capacity Taylor approached the U.S. affiliate of the Canadian home improvement retailer. In 2012 Do-Green signed a contract to supply 30 U.S. based stores throughout the North East states. For the next several years Do-Green established themselves as a major stakeholder in the residential solar power industry. The Canadian Dollar Loses Value In 2014 the Canadian dollar began to lose value against the U.S. dollar. Taylor and the Do-Green management team looked to further streamline their manufacturing and distribution network. Profits began to shrink as the devalued Canadian dollar began to become a real issue for Do-Green shareholders. However, even with the exchange rate being what it was, the company remained strong and profits were steady. Do-Green Goes Green With consistent demand and a reliable and robust supply/distribution system in place in both Canada and the U.S. Taylor began to focus on sustainability issues within the supply chain. Much of the dunnage and packaging Do-Green used to ship their product to retail distributors could be reused. Taylor began to develop a reverse supply chain where packaging and dunnage was returned to the Do-Green manufacturing facility to be used again. This initiative helped to further Do-Greens reputation of being a sustainable and environmentally conscious organization. Cost savings were also realized through the reverse supply chain program which helped offset the ongoing disparity between the Canadian and U.S. dollar. The New Frontier As Taylor Douglas pondered the new strategic direction of Do-Green, Taylor knew the exact date that Do-Green’s future was in jeopardy. On November 30, 2018 the (CUSMA) Canada United States Mexico agreement was signed. This new trade agreement took the place of the long standing NAFTA trade agreement. Under the CUSMA agreement Do-Green now faced higher tariffs to export into the U.S. This combined with an even weaker Canadian dollar meant that Do-Green had to change direction. The U.S. market was no longer viable. Taylor and the Do-Green management team knew there were market entry opportunities offshore. With 1.4 billion people and 18% of the world’s population, China was the obvious choice. Do-Green had to develop a new international supply strategy if they wanted to do business in China. Issues and Concerns Concerns regarding exporting to China were many. Taylor knew there would be logistical issues. Currently trucks left their facility and delivered directly to retail stores in both Canada and the U.S. International supply chains required multi-tiered distribution systems. There would be currency issues to consider as well as the potential for theft of products, product design and company intelligence. ERP and technology compatibility with Chinese distribution partners was of concern. Do-Green’s operational concept of being a lean organization would be taxed. The longer the supply chain the more inventory investment was required. With a longer more diverse supply chain Taylor knew that risk would increase, supply chain visibility would decrease and overall control reduced. As a green company Do-Green would incur added cost to retain its circular supply chain. Taylor knew that reclaiming packaging from China posed significant logistical and cost considerations. Among other things to consider there was the risk of natural disasters, terrorism and labour disputes potentially disrupting the supply chain. Where to go From Here Taylor and the Do-Green management team had some significant strategic planning issues to consider. They understood supply chain trends were heading toward more diverse and complex systems in the delivery of products and services worldwide. They realized that they needed to resolve a significant number of issues if Do-Green wanted to compete in the global supply chain.

1. Name and explain at least three risks the company faces and what dimensions of supply chain risk these fall under.

Answer 1

Do-Green faces many risks in its new international supply strategy if it wants to do business in China. The three key risks that Do-Green faces are-

1. Logistical risks- The international supply chain require multi-tiered distribution systems unlike the current system wherein the trucks left their facility and the products were directly delivered to the retailers. The multi-tiered distribution system requires high cost investment and currency issues as well. This risk falls under operational dimension as it involves the inadequacy in transporting procedures and processes.

2. Risk of visibility- Currently, Do-Green has greater control over the supply chain system hence they have good visibility of the entire system. In a diverse supply chain, the visibility would decrease and the overall control would be lost. This risk too falls under the operational dimension because it is the ability of the company to be able to access the company data quickly on-time. It refers to the accessibility issues.

3. Risk of natural disasters- Natural disasters like terrorism and labor disputes might disrupt the entire supply chain starting from Canada. This is a dynamic dimension that the risk falls under because it is not stable and they are unpredictable.

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