Abstract In this case we present issues facing supply chain management in a teay manufacturing
company. The company manages two types of products, ready-to-drink jasmine tea and ready-to-drink fruity tea, each having different complexity issues in their supply chain management processes. The case explains characteristics of the products, the supply chain structures and the nature of demand. The case is expected to facilitate discussions of various supply chain concepts such as the bullwhip effect, supply chain coordination and vertical integration versus outsourcing.
The First Meeting It was Friday, June 27, 2008. The coordination meeting between the marketing, distri-
bution and production departments was taking place. “Some stores have been out of stock of some types of Fteh in the last few days,” the distribution manager of Tehindo, a producer and distributor of tea products in Indonesia, informed the attendees. Fteh is their brand name for ready-to-drink tea with a fruity flavor.
“We have too many product variants of fruity tea. Such a significant shortage has never happened to our main product, Goteh. Why don’t we focus on Goteh? Its sales volume is high and demand fluctuation is low,” the operations manager added.
The marketing manager responded after a brief of silence, “It is indeed true what the operations manager mentioned. But, if we want to enter wider market segments, it is a must for us to keep innovative products with more variants in the market. In the future, there is no doubt that innovative products like Fteh with various flavors will hold a strong market segment. Their contribution to revenue is increasing over time.”
“But too many variants of Fteh increase the difficulties in production and distribution activities. Our performance looks bad because we often experience out of stock situations for certain variants, but an excess of inventory for other Fteh products,” the distribution manager continued.
1. I. Nyoman Pujawan and Mahendrawathi Er, Sepuluh Nopember Institute of Technology, Kampus ITS Sukolilo, Surabaya 60111 Indonesia (pujawan@ie.its.ac.id) and (mahendra_w@its-sby.edu). This case was prepared solely to provide material for classroom discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors have disguised some names and other identifying information to protect confidentiality. The views presented here are those of the case authors. Copyright © 2009 by Operations and Supply Chain Management: An International Journal and the authors. Used with permission.
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The marketing manager insisted that the increasing number of new variants of Fteh has enabled the company to hold a strong segment of teenagers. The classic Goteh did not really embrace the teenager segment of the market.
Company Background Tehindo has a long history in the tea business. The company began as a small home
business in Indonesia in the 1940s. The owner started the tea business in Central Java, but then moved to Jakarta in an attempt to capture larger markets after some 25 years. The company opened its first factory in the mid-1970s in Jakarta, producing ready- to-drink bottles of tea. The opening of the factory created a significant increase in sales, reflecting a healthy market for tea products.
Products Today, Tehindo produces three types of tea products. The first is called Goteh, a jas-
mine tea mostly packaged in glass bottles. A small percentage of this tea is also packaged in tetra packs (a small carton box) or tetra wedge (a small carton in the shape of trian- gular pyramid). The bottled jasmine tea is very popular in Indonesia and contributes the majority of revenue to the company. The product is consumed by all market segments. The second product type is called Fteh, a tea with a fruity flavor, packaged either in glass bottles, tetra packs or cans. Fruity tea is more directed toward teenagers and the distri- bution of products is through modern retail chains such as Sogo, Giant, Carrefour, Alfa, Superindo, Torseba Yogya and Indomaret. The third product category is cteh, a dried, chopped and ready-to-boil tea leaf, normally packaged in tea bags.
Among the three classifications, only the first and the second types are discussed in this case. Unlike Goteh, which has very limited product variants, as shown in Table 1, Fteh has a large number of variants based on the product flavors. Currently, the com- pany offers various flavors of Fteh including guava, strawberry, lemon, apple and black currant.
In the soft drink industry in general, there are two types of products according to their packaging. The first is called return glass bottle (RGB), where the empty packages are returned to the factory and used to produce new products. The second category is one-way product (OWP), where the packages will not be returned to the factory but
Table 1 Product variants for Goteh and Fteh
Product Group Packaging Size (ml) Number of flavors
Goteh (Ready-to-drink jasmine tea)
Glass bottle Tetra pack Tetra pack
220 200 250
1 1 1
Fteh (Ready-to-drink fruity tea)
Glass bottle Tetra wedge Can Plastic bottle PET
235 200 318 500
8 9 9 5
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will be disposed of after the products have been consumed. In Tehindo, only the glass bottles are classified as RGB, while the others are classified as OWP.
Managing RGB products is certainly more complicated than OWP. One of the chal- lenges would be to ensure a smooth flow of the products downstream as well as the empty bottles upstream. High inventory levels at some supply chain players for various reasons (including forward buying and forecast inaccuracy) would result in shortages of empty bottles at the factories for a certain period of time. Tehindo has a policy of announcing any price increase two weeks prior to the increase date. This is simply to please the wholesalers and retailers as they usually feel uncomfortable with a sudden price change. (Note that some other soft drink companies in Indonesia do not give wholesalers and retailers the privilege of knowing price increases well in advance, as this company does.) To avoid massive forward buying, the company requires the retai- lers and wholesalers to exchange empty bottles for full bottles, if they order within the two-week period from when the price increase is first announced until the date of the actual increase. Obviously, this is not possible for the OWP.