The Supply Chain Game "Beer Game" questions & solutions - Role of Retailer, Wholesaler, Distributor or Manufacturer in Beer Game, How to reduce Bullwhip effect in Supply Chain Beer Game

                                                     The Supply Chain Game

Please find the game link below:

https://beergame.opexanalytics.com/#/

 The Supply Chain Game Questions

1. Are there certain actions or behaviors during the game that you did particularly well or badly? And why? 
2. In the supply chain game which role (Role of Retailer, Wholesaler, Distributor or Manufacturer) do you consider was most difficult to manage inventory? Explain why ?
3. In what ways do you think you could improve your own practice in relation to gathering information and intelligence that will help to reduce the bullwhip effect? 

Solution to Supply Chain Game "Beer Game"

1. Are there certain actions or behaviours during the game that you did particularly well or badly? And why?

Initially I was not able to place orders accurately due to which stock out cost was getting increased every time I place an order due to which I lost game many times and contributed to bullwhip effect by big values above than 4. Later on I started noting my orders on notepad along with replenishment period to get exact number of units to be arrived at my place in every week which helped me to overcome challenges related to stock out cost but this time, I was overburdened with holding cost due to which I lost the game again. Next time, I kept on placing orders keeping in view my ending inventory levels and replenishment period. Since incoming order was unknown and difficult to predict, however playing many times, I got little bit idea of incoming order and started placing bigger orders in first two week period , then up to 8 to 10 week period one or two units greater than incoming order and then placed orders equal to incoming orders from week 11 to week 16, then increased orders by one or two units of incoming order in next 3 to 4 weeks and then placed less orders from week 20 to 26 than incoming order and then placed orders equal to incoming orders till week 30 and in last 6 week orders I placed orders keeping in view my ending inventory and incoming orders. Repeating this process a bit up and down multiple times, I was able to reduce bullwhip effect finally and won the game too. 

2. In the supply chain game which role (Role of Retailer, Wholesaler, Distributor or Manufacturer) do you consider was most difficult to manage inventory? Explain why?

Role of manufacturer was most difficult while handling inventory at its level. Since it was unpredictable when how many incoming orders will come every week, issue of holding extra inventory came into force every time I played as manufacturer in the game. Sometimes incoming order was very low and even zero and sometimes incoming order tends to reach upto 20 orders creating a dilemma in placing orders from my side. Since manufacturer is last participant in supply chain system and even switching on visibility mode and getting to know exact number of units ordered by customers, it was difficult to make adequate forecast on number of units to be ordered every week in order to reduce holding cost. When I reduced number of units ordered playing again, I was burdened with stock out cost. So managing an adequate inventory at manufacturer level to reduce holding and stock out cost was very difficult to achieve. Hence from my point of view, it was manufacturer where managing inventory was toughest task. I played multiple times as manufacturer applying all my logics and reasoning to win but lost every time. I adopted multiple strategies such as less units ordered in beginning weeks, more units in middle weeks, units equal to incoming orders in later weeks and mingled this strategy here and there but still not able to win the game and contributed to bullwhip effect.

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3. In what ways do you think you could improve your own practice in relation to gathering information and intelligence that will help to reduce the bullwhip effect?

Getting real time information on actual demand from customers is utmost important to plan and forecast demand of products to counter bullwhip effect and reduce holding as well as stock out cost. All Participants of supply chain system should be integrated on a common platform using ERP system to have adequate information of stocks available with each participant and actual demand coming from customer side so as to build safety stock in order to cope up with contingencies and bullwhip effect as arisen during Covid 19 pandemic situation. Information on Replenishment period is utmost important in countering bullwhip impact. So it is very necessary to know exact location and geographies of participants of supply chain system so as to avoid delays in shipment and transportation. A good and healthy relation and effective communication among all participants on sharing real time information on demand forecasting, inventory and shipment information will help to carve out bullwhip effect in supply chain system. Implementation of Collaborative forecasting system in supply chain will help to supervise stock Keeping units and sales status on real time basis and predict demand more adequately and with more visibility. Supply chain performance can be improved by sharing forecasting information such as sales and inventory data, planned orders and promotion information by all participants of supply chain system. Overall, real time information on actual flow of demand from customers for which retailers play an important role, replenishment period, collaboration of participants’ data on inventory planning and demand forecasting, building up of safety stock, implementation of ERP system to gather real time information related to inventory available with participants and collaborative forecasting system are major tools in relation to gathering information and intelligence that will help not only to reduce bullwhip effect but also fulfill customers’ needs and increase profitability.

Countering the Dreaded Supply Chain Bullwhip Effect in a COVID-19 World supply chain case study solution

 

Case: Countering the Dreaded Supply Chain Bullwhip Effect in a COVID-19 World

Case Study Questions

1. “Jenny Reese points out in Preparing for COVID-19 and the bullwhip effect: What happens to the supply chain when you buy 100 rolls of toilet paper?” Explain the bullwhip effect using this example. Give a description of events that you suspect will happen through the supply chain of toilet papers when such an event happens. 

2. Identify two other commodities which have witnessed an event of panic buying during the ongoing COVID-19 pandemic. Do you think a bullwhip effect can be expected in their cases? Justify your answer. 

3. “Building bridges with other supply chain partners is critical to preventing the bullwhip effect.” Read from the case study and explain how the given statement prevent bullwhip effect scenarios.

Case Study - Countering the Dreaded Supply Chain Bullwhip Effect in a COVID-19 World

By shifting from a forecast-driven ordering system to one that enables high levels of visibility and information-sharing, companies can effectively avoid the dreaded “bullwhip effect” in their supply chains.

The “Bullwhip Effect”

A distribution channel phenomenon in which inaccurate forecasts quickly turn into supply chain inefficiencies, the “bullwhip effect” refers to increasing swings in inventory in response to shifts in customer demand as one moves further up the supply chain.

With COVID-19 taking its toll on supply chains around the world, more companies will experience this detrimental impact, which was originally identified back in the 1960s and then weaved into supply chain vernacular in the 1990s.

That’s when Hau Lee of Stanford University told a story about Volvo to illustrate the bullwhip effect’s impact on the supply chain.

Suffering a glut in “green” cars at the time, Volvo’s sales and marketing developed a program to move its excess inventory.

The program helped raise interest in the cars, but Volvo’s manufacturing department was unaware of the campaign and wound up reading the increase in sales as an indication of a growing demand for green cars. In response, it ramped up production, thus adding to the glut and creating a bigger issue for the car manufacturer.

“A supply chain is a complex group of companies that move goods from raw materials suppliers to finished goods retailers,” Osmond Vitez writes in The Bullwhip Effect in Supply Chain.

“These companies work together when meeting consumer demand for a product; supply chains allow companies to focus on their specific processes to maintain maximum probability. Unfortunately, supply chains may stumble when market conditions change and consumer demand shifts.”

What Causes the Bullwhip to Snap?

According to Vitez, the bullwhip effect surfaces when changes in customer demand push organizations to order more goods to meet the new demand.

From there, the bullwhip effect flows up the supply chain - from the retailer to the distributor to the manufacturer and right through to the raw materials supplier. In many cases, the problem can be traced back to forecasting errors.

For example, when companies introduce new products, they estimate the demand for goods based on current market conditions.

“Most companies in the supply chain order more than they can sell, attempting to prevent shortages and lost sales of goods,” Vitez writes, noting that this excess inventory begins to increase or decrease during the normal market fluctuations of supply and demand.

“In the bullwhip effect, demand for items amplifies up a supply chain like the crack of a whip. Imagine a bullwhip - a tiny, swift flick at the whip’s handle results in an uncontrolled, widely snapping motion at its tip,” Amy White describes in The Causes and Impact of the Bullwhip Effect on Supply Chains.

“Similarly, a simple action such as a manager ordering products at a store can result in unpredictable effects at the top of the supply chain like a manufacturer or wholesaler.”

This variable and unpredictable demand leads to significant supply chain inefficiencies that include (but aren’t limited to), buying and storing excessive inventory, lost revenues, ineffective transportation, missed production schedules, out-of-stock products, poor customer service, and higher costs for consumers.

Addressing the COVID-19 Bullwhip

In the wake of the COVID-19 health crisis, images of empty store shelves have triggered a few things: even more panic buying, a social media frenzy of hoarder shaming, and even gang activity linked to toilet paper theft in Hong Kong.

“For many supply chain leaders, this presents the enormous and potentially costly challenge of dealing with the bullwhip effect” Jenny Reese Senior Manager, Solutions Marketing at Kinaxis

“For many supply chain leaders, this presents the enormous and potentially costly challenge of dealing with the bullwhip effect,” Jenny Reese points out in Preparing for COVID-19 and the bullwhip effect: What happens to the supply chain when you buy 100 rolls of toilet paper?

“When major swings in inventory occur from panic buying and hoarding, the impact of this sudden demand is magnified as it moves upstream in the supply chain (similar to the way a bullwhip’s thong amplifies in a wave as it moves away from the handle),” Reese writes, noting that little or no visibility into demand patterns and limited understanding of demand drivers are the primary culprits in this scenario (of course, COVID-19 came with little early warning, hence the paper goods shortage).

“How long can this boom in freight volumes last?” FreightWaves’ Daniel Pickett asks. “I have to imagine we are seeing a one-time pull of inventory as pantries, garages, and freezers are filled. Inevitably, the shelves at home will be full, and we will see a ‘demand hangover’ in grocery retail and trucking.”

Building Bridges with Partners

For companies that want to avoid or counter the bullwhip effect within their own supply chains, the answer lies in accurate, real-time demand information across the supply chain.

To achieve that, companies must shift from a forecast-driven ordering system to measures that enable information-sharing with the supply chain partners and provide complete visibility of the actual customer demand.

Using real-time inventory and shipment information, companies can effectively minimize the risk of disruption while moving more inventory at a predictable, reliable cadence.

In How to reduce the bullwhip effect, George Lawton tells companies to educate themselves on the causes of the bullwhip effect, build better trust across supply chain partnerships, consolidate supply chain data (i.e., aggregate efforts across suppliers), and gain an understanding about partner processes. “Building bridges with other supply chain partners is critical to preventing the bullwhip effect.”

Case Study Solutions

1. “Jenny Reese points out in Preparing for COVID-19 and the bullwhip effect: What happens to the supply chain when you buy 100 rolls of toilet paper?” Explain the bullwhip effect using this example. Give a description of events that you suspect will happen through the supply chain of toilet papers when such an event happens.

A small change in downstream demand at consumer level causes significant change in upstream demand closer to manufacturer. This phenomenon in supply chain refers to bullwhip effect where a small change in consumer demand causes a big change in inventory of each participant and this change tends to become bigger and bigger as one moves upstream from inventory of finished goods to inventory of raw materials in supply chain system leading to supply chain inefficiencies¹. Bullwhip effect spurs due to inadequate demand forecasting, unexpected change in demand of customers and buying patterns as experienced during COVID 19 crisis as in case of toilet paper and other commodities.

Assuming one toilet roll paper required by one person per week and counting four members in a family leading to 4 toilet roll paper per week per family is general demand of toilet roll paper universally and in case one buys 100 rolls of toilet paper due to Covid 19 pandemic which S/ he generally does not buy in normal situation will impact supply chain of toilet roll paper adversely and hinder the process of forecasting actual demand in the market thus increasing overall cost, reducing profitability, stock out and even excessive inventory and huge volatility in supply and demand of toilet roll papers. Initially it will trigger retailer to place more number of units to be ordered to its wholesaler than usual order units and in turn wholesaler will demand more number of units from distributor and this will force distributor to demand an increase in production of units from producers. ² It will causes massive miscommunication among participants of supply chain as the demand for products increase and decrease exponentially in a short amount of time. ³ It will result in a volatile and unbalanced manufacturing environment where participants of supply chain will struggle to intelligently predict demand as a result of panic buying behavior. ⁴ As suppliers are fulfilling the demand of yesterday, the demand of today could be completely different from that of tomorrow. Retailers have to limit on number of units of toilet paper given to one customer at one time. The customer will face issue of stock outs in retail outlets. The retailer will lose sales and customer service will be deteriorated.⁵ Wholesalers and Distributors will be messed up in determining who should get how much in this shortage, and manufacturers will be unable to increase production instantly and overwhelmed with sudden and unanticipated spikes in demand.

In case people buys 100 toilet roll paper due to panic buying and situation prevails for few days  demand will increase abruptly and retailers will order more quantity. Sales will go high for few days while industry will supply what it could. When retailers will give new orders to all suppliers of toilet roll papers they will recreate new demand forecasting based on past days sales. Since all retailers will be ordering at the same time, they will order more units to wholesalers and wholesalers will follow the same pattern and order more units from their distributors and distributors will be demanding more units from producers. Thus, toilet roll paper producers will also increase their orders from their raw material suppliers and increase their production. However, since toilet paper usage at home did not significantly increase during this period, sales will decrease tremendously. By this moment retailers will realize the new sales level of toilet roll papers and thus cancel or reduce their most of open orders thus inventory matching at new sell out level. Same will be done by wholesalers and distributors at their end. Manufacturers of toilet roll papers will struggle finding new buyers for their finished products once orders will be cancelled form distributors’ end. They will also have to revise their entire production schedule, MRP, headcount, etc. Producers will also cancel their surplus orders from their raw material suppliers who were also preparing for an increased demand thus creating a chaos in whole supply chain system. Thus bullwhip effect will generate huge losses to all participants of supply chain in terms of stock out , increase in holding cost, excessive inventory investment, ineffective capacity planning & production scheduling , transportation cost, poor customer services and loss in revenues. ⁶

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2.Identify two other commodities which have witnessed an event of panic buying during the ongoing COVID-19 pandemic. Do you think a bullwhip effect can be expected in their cases? Justify your answer.

During Covid 19 outbreak, panic buying has been seen for grocery items, pharmacy and hygiene products such as sanitizers, face / surgical masks and disinfectants. In U.S., Sales of rice have been increased by 50 % and canned meat by 40 %. Sales for peanut butter, pasta, beans and bottled water have increased significantly as a result of panic buying during ongoing Covid crisis. Online purchase of cold, flu and cough products have increased by 198 % and online purchase of non perishable products such as canned goods have been increased by 69 % in US.⁷ This event of panic buying is unsustainable and causes scarcity in the market creating inaccessibility of necessary commodities for those who are in need.

This type of surge in demand and change in buying pattern impacted supply chain adversely and gave rise to phenomenon called bullwhip effect in supply chain system of necessity products, grocery items and pharmacies products and other commodities where stockpiling has been done by customers due to fear of stock out. The demand shocks and volatility created by COVID-19 have caused extreme bull whip effects on products taken into consideration, that resulted in an unpredictable and unstable manufacturing environment where suppliers struggle to intelligently predict demand as a result of panicked buyer behavior. Panic buying forces supply chain participants to increase demand of such products from suppliers and suppliers to increase production capacity to meet such demand which was not there before. Small changes in demand creates wider demand changes at upstream level in supply chain resulting in inability to provide products to go downstream to retailers and meet demands of customers. Bullwhip has rippled up and down supply chain of grocery, pharmacy and hygiene products whose demand has been intensified due to panic buying. Many times demand due to panic buying does not reflect actual consumption.⁸ For example; increase in demand of surgical mask is mix of increase in consumption and fear of stock out however demand for rice is an example of panic buying only. No one is consuming more rice so increase in demand does not reflect increase in consumption of rice. Consumption of many products remained constant but due to temporary increased demand, supply has been increased leading to surplus of such products in market and searching customers for excessive surplus products in the market by suppliers.  During March and April in Singapore, eggs were missing in supermarkets and online stores but in month of June distributors had thrown away more than 250000 eggs due to oversupply. This movement from deficit to surplus is a classical example of bullwhip effect where inadequate forecast and little or no visibility of demand in a volatile market by supply chain participants led to face situation of surplus or excessive stocks and suffer such loss.⁹ Bullwhip effect caused supply chain disruptions of commodities taken into consideration due to panic buying and inefficiency of supply chain participants in predicting adequate demand to combat impact of bullwhip.

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3.“Building bridges with other supply chain partners is critical to preventing the bullwhip effect.” Read from the case study and explain how the given statement prevent bullwhip effect scenarios.

Demand forecasting and sales estimation are usually done separately by participants of supply chain. When retailers notice a slight increase in demand of a certain product, they order extra units in case the small upturn in sales indicates a trend.  When wholesalers receive the order from retailers and distributors from wholesalers and see an uptrend in demand, they make their own forecasts which create chaos because they are not based on real time sales figure. When producers get the orders and analyse it, perceived increase in demand becomes more exaggerated leading to bullwhip effect. In order to avoid this situation, retailers must share information on demand pattern of products to its upstream partners so that participants of upstream chain get necessary data for predicting accurate demand of products future and adjust inventory on the basis of real time demand information and thus avoid losses and counter bullwhip. Participants of supply chain must have full visibility in projected demand on real time basis so that they can secure inventory for building safety stocks. Clear picture on demand and supply of products will help supply chain system to manage demand signals more accurately and promptly, ensures faster response to customers and smoothen effects of demand variation and thus overcoming impact of bullwhip in supply chain system.¹⁰
Instead of batching orders at certain times of month or year which is less time consuming and cheaper, manufacturers should focus on receiving steady stream of orders which will reflect actual day by day demand of products. Higher administrative cost involved in this system can be reduced by shifting from manual ordering system to software based ordering system and transportation costs may be  reduced by collaborating with other suppliers to consolidate loads to achieve economies of scale in shipment and transportation cost. ¹¹ Managers should also work to understand demand patterns throughout all stages of the supply chain by sharing information and collaborating with other managers of different supply chain participants. All participants of supply chain should know what the final customer needs, and are aware of the outstanding inventory of their suppliers and customers. There must be effective communication and sharing of information between internal departments and throughout supply chain system to avoid discrepancies in inventory management, ordering and shipment. Communication with customers is utmost important to have real time information on demand of products and thus match need of customers in contingencies easily with no stock outs or inventory surplus.

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References:

1. “What is Bullwhip effect” retrieved from https://ibf.org/knowledge/glossary/bullwhip-effect-42.

2. Michael Ignatiadis, Head of Supply Chain & Logistics Solutions (July 10, 2020) Too many eggs: Supply chain shocks arise from COVID-19 retrieved from https://www.jll.co.in/en/trends-and-insights/investor/too-many-eggs-covid-19-turns-focus-on-the-bullwhip-effect

3. Mike Hockett (Jul 16th, 2020) The Pandemic's Bullwhip Effect on Food & Beverage Inventory retrieved from https://www.foodmanufacturing.com/supply-chain/article/21140181/the-pandemics-bullwhip-effect-on-food-manufacturers-inventory.

4. Mahesh Rajasekharan (June 8, 2020), The COVID-19 Supply Chain Impact – Avoiding the Bullwhip Effect retrieved from  https://www.sdcexec.com/sourcing-procurement/article/21134023/cleo-the-covid19-supply-chain-impact-avoiding-the-bullwhip-effect.

5. Jenny Reese (March 24, 2020) Preparing for COVID-19 and the bullwhip effect: What happens to the supply chain when you buy 100 rolls of toilet paper retrieved from Preparing for COVID-19 and the bullwhip effect: What happens to the supply chain when you buy 100 rolls of toilet paper.

6. Tiago Horvath. LATAM Supply Chain Development Manager at Nestlé Purina Latam (April 20, 2020) retrieved from https://www.linkedin.com/pulse/great-lockdown-supply-chain-bullwhip-effect-tiago-horvath/?articleId=6657742452385996800.

7. Shweta Sarma (April 2, 2020). The impact of Panic Buying on the Retail Supply Chain retrieved from https://blog.locus.sh/impact-of-panic-buying-on-the-retail-supply-chain/.

8. Sam Wood (16 March 2020). The damage panic buying does to supply chains and retailers retrieved from kent.ac.uk/news/society/24684/expert-comment-the-damage-panic-buying-does-to-supply-chains-and-retailers.

9. Michael Ignatiadis, Head of Supply Chain & Logistics Solutions (July 10, 2020) Too many eggs: Supply chain shocks arise from COVID-19 retrieved from https://www.jll.co.in/en/trends-and-insights/investor/too-many-eggs-covid-19-turns-focus-on-the-bullwhip-effect

10. TRACC (17 April 2020). Demand variability: 5 action steps to take in a time of crisis retrieved from https://traccsolution.com/blog/demand-variability/.

11. Whang and Lee (1995): Eliminating the Bullwhip Effect in Supply Chains retrieved from https://www.gsb.stanford.edu/insights/whang-lee-eliminating-bullwhip-effect-supply-chains

Supply Chain Case Study solution: Pandemic gives hyperlocal model a new lease of life Supply Chain Management Case study solution MBA Project and assignment solutions MBA Online Coaching, Home Tutor &Tuition

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Case Study: Pandemic gives hyperlocal model a new lease of life Supply Chain Management Case study solution

Case study source: https://tech.economictimes.indiatimes.com/news/internet/pandemic-gives-hyperlocal-model-a-new-lease-of-life/75072580

1.      “Everyone is jumping onto it right now, but the underlying supply hasn’t changed. We’re staying away from it,” said Albinder Dhindsa, co-founder and CEO of grocery retailer, Grofers. What do you think are the complexities associated with hyperlocal grocery delivery business model? Discuss in detail. 

2.      “Pandemic gives hyperlocal model a new lease of life”. Do you think this boost in business will be short lived or will it create an everlasting impact on the hyperlocal ecommerce business scenario? 

3.      Compare Bigbasket and Grofers supply chain capabilities. Which do you think is superior in meeting market requirements and is more sustainable? Justify your answer with suitable reasoning. 

4.      COVID-19 is a black swan event but supply chain disruptions around the world are a common phenomenon. Produce a detailed discussion on how businesses can prepare themselves to minimize the impact of future supply chain disruptions. Compare the advantages and disadvantages of local vs global sourcing. 

1.“Everyone is jumping onto it right now, but the underlying supply hasn’t changed. We’re staying away from it,” said Albinder Dhindsa, co-founder and CEO of grocery retailer, Grofers. What do you think are the complexities associated with hyper local grocery delivery business model? Discuss in detail. 

Hyper Local grocery business in India is an active move by new generation entrepreneurs for Indian market where all types of retail business including grocery is unorganized and unstructured and there is a huge potential of growth into it. There is a growth of 80 % in startups of hyper local delivery business since 2014 in India¹. More than twenty such start ups came into existence during 2018-19 but many of them have shut down their business with eight to ten months of operations due to under weighing complexities associated with this business model and to it². The major complexities and challenges related to hyper local grocery business includes³-

Partnering with local retailers as suppliers

Convincing local retailers to become supplier is very difficult to attain as most of retail outlets care for life time value of customers and repeat purchase that takes place due to good conduct with customers, selling goods on credit, socializing with them and treating customers as friends and relatives benefits of which is ripped over a period of time which is lagging in hyper local delivery business. Most of famous grocery stores are not present due to absence of peculiar showcasing of such stores on these apps. Many retailers are uneducated and technophobic which also creates complexities in conduct of business⁴. This has led to set up of own warehouse of grocery items for many hyper local grocery delivery company insisting them to invest huge chunk of money in inventory of grocery items.

Inventory management

Local merchants are not well organized and structured. Most of them do not follow any inventory management system. Keeping a record of inventory without knowing availability of such inventory with partner merchants puts the company on risk of mismanagement of inventory and making a particular inventory available and delivering it on a particular location for customers within a specified time frame becomes difficult in real time scenario⁴. Setting up own warehouse and inventory puts extra cost of handling such inventories to the company narrowing down profit margins.

Poor or delay in delivery

Delivering groceries with in promised time frame is the major focus of hyper local business but due to poor infrastructure such as heavy traffic on roads and delay in searching address of delivery makes last mile delivery delay making customers unsatisfied with service of company leading to switching of customers either to other such app or mostly local grocers as most of local grocers are availing free delivery of grocery directly to customers where delivery time is very less and urgent delivery facility is also provided by such local grocers⁵.

Issues faced by delivery persons

Due to unavailability of all products ordered by customers in a single partner store, these delivery executives have to move from one store to other store to collect inventory and reaching to customers within same stipulated time period of delivery seems impractical and creates chaos in case they have to collect goods from store which is quite far from other store and customer delivery address is also in different direction⁵.

Unreliable delivery service

Shortage of skilled delivery executives and absence of large fleet to manage delivery system efficiently may ruin success of this business model. Even if they are present, they are very irregular and unreliable posing threat to efficiently manage delivery service on time.

Quality issues related to Perishable & Non branded items

Perishable nature products if not reached to customers in fresh conditions and non branded products if not up to the mark of customers will lead to return of such products thus increasing operational cost of company and moving of customers away from the company to other such business apps.

Issues related to return and refund of products

In case customers return goods, many partner stores are not willing to take it on return and refund money creating an issue to company to keep them convincing that this is policy of company to take goods on return and refund money in case buyer returns the product. Due to it, many partners do not hesitate to even break contract of collaboration.

Irregular surge or decline in orders

Many times company suddenly gets sure or decline in orders creating problems in managing operational efficiency during such period and such time they need to adjust delivery boys, fleets and other operational capabilities to meet such requirement which creates problem for the company⁶.

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2. “Pandemic gives hyper local model a new lease of life”. Do you think this boost in business will be short lived or will it create an everlasting impact on the hyper local ecommerce business scenario?  

Covid 19 outbreak has changed the mindset of buyer and seller and popularity of hyper local business model has been witnessed during this pandemic. In initial period of lockdown, hyper local deliver companies have seen three to five times surge in demand of hyper local delivery than pre covid (Praharsh Chandra, co-Founder and COO, Shadowfax). Companies like Grofers, Big basket and Amazon Fresh have seen a surge of approximately 45 % in its orders during lockdown and 18 % in its order value. Flipkart has launched its own hyper delivery service called Flipkart quick and Paytm Mall is in process of partnering with 1000 local merchants to cater needs of hyper local service. Swiggy too in the race has opened Instamart with 2500 products in August 2020.⁷

This pandemic has paved a new way of convergence of offline and online in a fast and positive fashion which was taking placing since last few years. This boost in business will create long lasting impact  on Hyper local E Commerce business and facilitate not only survival but tremendous scope and opportunities in terms of huge revenue potential, growth and success in long run once pandemic will be over. Entry of big giants such as Flipkart, Amazon, Paytm, Swiggy and others assures huge potential of success of this model in future.

 In a report of EY – Sentiments of India; 40 % local stores are willing to partner with hyper local delivery business to assist them in their growth post Covid. 20 % of retail outlets in metro as well as non metro cities are using online mechanism for supply and delivery of goods. Consumers will be moving to be dependent on hyper local deliveries as it will help them to avoid long queues and will assist them to have convenience of shopping daily based goods requirement online. As a precaution of safety measures, customers will prefer to buy online instead of roaming in crowded areas where chance of spread of this virus is very high.

Adoption of technologies by both consumers and local retailers in near future, seamless coverage of geographical locations all around country, convenience and comfortability of exchange process sitting at home, strong warehouse presence in all localities, simple and fast transportation facility, presence of efficient and experienced delivery partners (local retailers can become delivery partner), and presence of 700 million internet users in India which will grow in future are key crucial factors that will help companies to survive, grow and generate profit for them in future using this business model.( Shadowfax’s Chandra).

This business model has helped local retailers to meet demands of customers in a period of surge and panic and deliver essential and non essential stuffs to their customers with ease and convenience. Adequate predictive logistics management platform, real time visibility of stocks and delivery process, specific and fast routing to speed up delivery will help to effectively and efficiently manage growth of hyper local business.

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3. Compare Bigbasket and Grofers supply chain capabilities. Which do you think is superior in meeting market requirements and is more sustainable? Justify your answer with suitable reasoning. 

With its operations in more than 25 cities and 5000 plus products on its platform, Big Basket currently follows an inventory based model in which it buy goods in bulk directly  from manufacturers of products such as P&G, Unilever, Patanjali, farmers, mills etc, thus getting a huge discount on its purchase. Company has also its own private brands of products from where it generates most of its revenue such as Fresho, Royal Organic, Chef Gourmet. It also distributes its private label products among 3000 Kirana stores. It buys unbranded products and puts its label and avail it for sales on its platform. The company keeps an inventory of 10 days in stock as against industry policy of one month. For perishable products, it follows JIT system. Keeping fewer inventories and wastage of perishable products to 5 % (which fits to global standard) help company to save cost up to 3 % which is much fruitful to survive and increase profit in such a low margin business and attains a competitive advantage against its competitors.¹⁰ The company has partnered with more than 1800 retail outlets to deliver products on time. The company is currently following delivery of goods within four hours to its customers.¹¹ In order to manage delivery without delay, it has revamped its warehouse operation and invested almost three times more than its earlier investment in warehousing. All products bought in bulk are brought to major ware warehouses located in major cities of country and then supplied to small warehouse centers from where goods are packed and dispatched to customers as per the orders received on Big basket platform. For perishable products, products are picked from delivery agents from farms or partners’ location directly and brought to nearest collection centers. The company currently has 25 collection centers for organic (seven) and perishable products.¹² it manages its own fleets for collection and delivery of goods which gives an added advantage of delivery goods on time. The whole system of supply chain from order taking to delivery, collection of products from vendors, distribution, payment and processing of returns are well equipped with artificial intelligence and machine learning models which also helps in adequately forecasting demand of products within a city.

Supply chain model of big basket (Image 1)

Grofers currently operating in 27 plus cities with 48 warehouses follows an inventory based model where company procures perishable as well as non perishable products from various vendors and stores it in its warehouse, thus managing quality of products and efficiency in overall business operations. When an order is placed on the app, the demand order goes to warehouse where employees pack the products. Once packaging is done, delivery executives can pick it up and deliver the products to customers’ location using smart device geo location assistance.¹³ Deliveries at Grofers are scheduled one day before delivery date to provide logical route planning and load balancing solutions. Company currently delivers products in slots of 2 hours such as between 8 am to 10 am. In order to provide visibility to track order, company keeps on updating expected time of delivery based on delivery agent’s location¹⁴. Quality checks of products are done at the time of delivery by delivery person. Grofers has also launched its own brands consisting of 1200 products like Mother’s choice, G- Fresh, G- Daily which is 25 to 30 % cheaper than national brand constituting 40 % of its sales and it helps it to generate 30 % of its total revenue. The company is targeting to become complete private label firm by 2021 and has launched more than 250 products in the segment. It has partnered with 7000 local retailers’ pre covid and added 2000 more in the wing post covid to expand its operations and meet its last mile delivery on time. The company is targeting middle class customers who are ready to accept delivery after one day of order placement.¹⁵This strategy has worked well for Grofers and company has been growing 25 % monthly in terms of revenue generation. It has put a cap on quantity of items one can buy at maximum to manage inventory properly and avoid shortage. The Company is also working with 800 MSMe under its Brand farm initiative to improve its profitability on such products. By focusing on segments where bulk buy has been exhibited by customers to avoid multiple deliveries.¹⁶

Old and New Supply Chain model of Grofers (Image 2)

Looking into supply chain capabilities of Grofers and Big basket; Big basket uses artificial intelligence to estimate demand and supply of products with in a city to procure and manage inventory in warehouses, thus reducing risk of stock outs or surplus of inventory. Products are first procured from manufacturers, farm houses and local merchants (perishable products), stored in warehouse, segregated to different small warehouse from where products are packed ande delivered to customers within four hours of placement of order. Earlier, Grofers followed hyper local delivery model where after getting order, it collects products from partner shops and then deliver it customers. But now it moved to mixed model (inventory based plus hyper local delivery) where it has launched its own products under its brand name and parallely procures inventory from its vendors, stores in its warehouse, packs order in warehouse and then delivery boy picks it up for delivery to customers’ location using Geo location software. By purchasing goods directly from producers and farmers, big basket saves huge chunk of money on its purchase, thus passing a small part of this benefit to its customers. Grofers has tied with local merchants to procure products rather buying it directly from producers and farmers. However, company is targeting to sell 100 % private label products by 2025 in which it will buy products from producers and put its own brand in market where pricing is 20 to 30 % lower than national brand and offering benefits of such pricing to its customers directly. Big basket too has its private label brands which it offers to its customers through its platform and selling it to more than 2000 local grocery stores directly.

Big basket appears to be more capable in supply chain management process than Grofers as company is one step ahead in strategy formulation and implementation of management of inventory, demand and supply estimation of products, delivery process, visibility of products on its app, fleet and delivery management process and tackling customers’ issues. With technological upgradation and sound implementation of AI and learning models, company is in a position to adopt JITsystem for perishable products thus minimizing wastage on perishable products to an extent of 5 % and maintain inventory of 10 days thus saving cost on inventory storage and quality control and reducing wastage to an extent of 3 %. Grofers’ supply chain model is still evolving and they are taking necessary steps to make it most efficient to match market standards and save cost on inventory management, delivery process and warehouse management to reduce cost and increase savings for company.

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4. COVID-19 is a black swan event but supply chain disruptions around the world are a common phenomenon. Produce a detailed discussion on how businesses can prepare themselves to minimize the impact of future supply chain disruptions. Compare the advantages and disadvantages of local vs global sourcing. 

In order to minimize impact of future supply chain disruption keeping in view the current pandemic and past disruption instances, companies can adopt following steps and strategies to develop resilient supply chain-

Company must focus on assessing supply chain risks and identify key focus areas to be worked upon such as change in demand and inventory level to locate and deploy necessary changes in supply gaps, warehousing, transportation and production and align with key performance indicators to reprioritize strategies and plans so as to efficiently eliminate risks surrounding supply chain. Mapping of supply chain from network from end customers to suppliers and development of a sound method to measure risk in each process of supply chain is essential to counter disruptions in future.¹⁷

Companies must adopt sound technologies and automated manufacturing process and capabilities to standardize routine work, reduce dependency on labours in case of emergencies and maintain relevant database of supply chain capabilities to make decisions at any point of time. Adoption of digital procurement tool backed up with priority categorization across supply chain variables and implementation of social network for suppliers will help companies to empower collaboration with suppliers and increase sourcing capabilities in tough times.¹⁷

Companies must develop a contingency plan to be put into picture to be implemented in case of supply chain disruptions and set aside an emergency budget to be used to face challenges caused due to such disruptions. It must also maintain sufficient amount of inventory to let company going in case supply chain system has been temporarily interrupted. A regular audit of supply chain process is must to identify potential weak areas that can negatively impact supply chain and search for alternatives to strengthen supply networks and make it resilient against disruptions in future.¹⁸

Companies must also search for alternate suppliers, production process and transportation system in different geographical locations so as to use them as and when required in case current system fails and keep its supply chain functioning. It is better to adopt different / diversified suppliers in different geographical locations in order to get supply of raw material or goods from one or other in case of disruption and keep on working in situations like Covid 19.¹⁸

 Partnering with logistics experts so as to get assistance to alter routes and supply chain mechanism in case of disruptions can help companies to safeguard its business suffering losses during disruption and counter problems encountered during disruptions. It is good to make use of artificial intelligence mapping tools to examine potential threats in supply chain and getting AI based solutions to avoid disruptions in emergencies.¹⁸

Comparison of Pros and Cons of Local sourcing and Global sourcing

Lead time

Lead time of delivery of goods is usually shorter in local sourcing than global sourcing thus saving time as well as money of company stuck in inventory stuck in transit if opted global sourcing.¹⁹

Customer preference

Customers prefer to buy goods in case goods are manufactured locally thus favoring local sourcing a better proposition over global sourcing.¹⁹

Relationship with suppliers

Local sourcing helps in making strong and healthy relationship with local suppliers which can help companies in case of emergencies. However in global sourcing due to language barriers, cultural differences and physical distance it is difficult to create straightforward strong and healthy relations with them.²⁰

Control on production

It is easy to supervise quality of products at the manufacturing of goods while dealing with local suppliers as compared to global suppliers. Due to availability of suppliers in vicinity companies can easily approach to production center and inspect quality of products and make necessary changes with little efforts which is difficult to take place while opting global suppliers.²⁰

Ease of communication

Communicating with local suppliers is always easy as there is no hindrance of language and cultural barrier. Travelling to suppliers’ location is less costly and time saving as compared to physically visiting global suppliers and interacting with them as one needs to deploy procurement officer who can speak in their language which is a costly affair. ²¹

Political stability

Risk of political instability is prevalent in global sourcing which can disrupt entire supply of goods and companies can suffer huge financial loss which is not in case of local sourcing.²¹

Cost of shipping, taxes and tariffs and exchange rate risk

Cost of shipping from other country is generally higher than local shipping cost. Shipping goods from aircrafts are even costlier affair and add extra burden to purchasing companies. Change in import and export tariffs, change in exchange rate of currencies of two countries and other taxes on goods further raise cost of goods favoring local sourcing a better alternative.²²

Availability of resources

Resources which are scarce in a particular nation and available in plenty in other nation, sourcing of such goods from international market rather than depending on domestic market will be wise and profitable for companies.²³

Production capacity, efficiency and quality of products

Many suppliers outside the ambit of local have huge production capacity and rest upon advanced technological manufacturing systems thus maintaining and availing global standard of quality at cheaper cost due to attainment of economies of scale in production than local suppliers. Local suppliers in most cases work with limited production capacity and limited technological capabilities thus unable to maintain quality of goods as per global standard and compete with them either in quality or pricing. In such case global sourcing is better bet.²³

Innovation and R & D for future products

Global suppliers continuously focus on innovation and invest huge chunk of money in development of future products which is not valued by local suppliers due to inefficient capability and fund limitations. Global suppliers keep on upgrading quality of products and bringing new innovative products thus imposing a huge influence on companies to partner with international suppliers rather than tie up with local suppliers.²⁴

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References

1. Srishthi Arora (2020). 7 Hyperlocal Delivery Challenges & Practical Solutions to Overcome Them retrieved from https://www.shiprocket.in/blog/hyperlocal-delivery-challenges/.

2. Priyanka Pani (2018) Hyperlocal grocery’ business bowing down to local stores, big brands retrieved from https://www.thehindubusinessline.com/info-tech/hyperlocal-grocery-business-bowing-down-to-local-stores-big-brands/article8072442.ece#.

3. Dr. Ramkishen Yelamanchili (2016). Challenges and Constraint in Supply Chain Management for Hyperlocal Delivery Business in India retrieved from https://www.researchgate.net/ publication/312377366_Challenges_and_Constraint_in_Supply_Chain_Management_for_Hyperlocal_Delivery_Business_in_India.

4. Challenges Faced by Online Grocery Businesses & Their Solutions retrieved from https://www.fatbit.com/fab/challenges-faced-online-grocery-businesses-and-their-solutions/

5. Quick Tips To Address 4 Key Grocery Delivery Challenges retrieved from https://www. getfareye.com/insights/blog/quick-tips-to-address-4-key-grocery-delivery-challenges.

6. Ithink logistics (2020) 7 Challenges Faced in Hyperlocal Delivery and Solutions to Overcome Them retrieved from https://ithinklogistics.com/blog/7-challenges-faced-in-hyperlocal-delivery-and-solutions-to-overcome-them/.

7. Annapurani (2020). Why the demand for hyperlocal delivery will continue post-Covid retrieved from https://www.thehindubusinessline.com/economy/why-the-demand-for-hyperlocal-delivery-will-continue-post-covid/article31694345.ece

8. Kushal Nahata (2020) Is Hyperlocal Delivery Model Sustainable In The New Normal retrieved from https://www.inc42.com/resources/is-the-hyperlocal-delivery-model-sustainable-in-the-new-normal/

9. Hyperlocal And Digitization During Covid-19: It Takes Two To Tango(2020). Retrieved From Https://Www.Magzter.Com/Article/Business/Entrepreneur-Magazine/Hyperlocal-And-Digitization-During-Covid-19-It-Takes-Two-To-Tango

10. Sachin Sharma (2020), BigBasket Business Model and How it Works retrieved from https://oyelabs.com/bigbasket-business-model/

11. Chaitra, Harshitha & Saswatha (2019). Online Grocery Retail Business Model, Supply Chain Strategies And Growth Drivers For Online Groceries (Catering To Big Basket)

12. radhika Nair (2017) As Flipkart and Amazon join the search for the elusive grocery ‘Holy Grail’, lessons from BigBasket and Grofers retrieved from https://yourstory.com/2017/12/online-grocery-flipkart-amazon-bigbasket-grofers?utm_pageloadtype=scroll

13. Anurag Jain (2020). How Grofers Work? Latest Business & Revenue Models Explained Retrieved from https://oyelabs.com/grofers-business-and-revenue-models/

14. Gagandeep Arora (2017) The journey of your Grofers order from the warehouse to your doorstep retrieved from https://grofers.com/blog/journey-of-an-order-from-the-grofers-warehouse-to-your-doorstep/

15. Charu lamba (2020) Grofers to invest US$ 15 million in ‘own brands’ over the next year retrieved from https://www.indiaretailing.com/2020/10/06/food/food-grocery/grofers-to-invest-us-15-million-in-own-brands-over-the-next-year/

16. Grofers to invest $15 million in private labels as demand grows retrieved from https://www.livemint.com/industry/retail/grofers-to-invest-15-million-in-private-labels-as-demand-grows-11587390770481.html

17. EY Global (2020). COVID-19: how to build supply chains resilient to disruption retrieved from https://www.ey.com/en_in/consulting/how-to-build-a-supply-chain-thats-resilient-to-global-disruption.

18. Susan Meyer (2020). Combatting Ecommerce Supply Chain Disruptions and Steps You Can Take to Minimize Impact retrieved from https://www.bigcommerce.com/blog/supply-chain-disruptions/#what-is-a-supply-chain-disruption

19. Gravalot (2020). Local vs International Sourcing and Manufacturing: Pros and Cons retrieved from https://medium.com/@gravalot/local-vs-international-sourcing-and-manufacturing-pros-and-cons-9ac7877beaf4

20. Rohan Agarwal (2020). Global Sourcing: Pros and Cons of Global Sourcing retrieved from https://www.yourarticlelibrary.com/retailing/global-sourcing-pros-and-cons-of-global-sourcing/48207

21. The Pros and Cons: International and Domestic Sourcing retrieved from https://www.unleash

edsoftware.com/blog/pros-cons-international-domestic-sourcing

22. Jack Stover (2020). The Advantages of Domestic Sourcing and International Supply Chains retrieved from https://blog.seebiz.com/the-advantages-of-domestic-sourcing-and-international-supply-chains/

23. Ryan Mets (2019) Should I use an international or a local supplier? Retrieved from https://www.metafuro.com/resources/sourcing/international-or-local-supplier/.

24. Bir Cevap Yazın. Global or Local Sourcing retrieved from http://blog.lccsupplier s.com/global-or-local-sourcing/

Image 1 Source: Http://Ijariie.Com/Adminuploadpdf/Online_Grocery_Retail_Business_Model__Supply_Chain_Strategies_And_Growth_Drivers_For_Online_Groceries__Catering_To_Big__Basket__Ijariie10837.Pdf

Image 2 Source: https://oyelabs.com/grofers-business-and-revenue-models/

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