Discussion:
Greenery is a manufacturer of healthy, organic packaged foods that are sold at several grocery store chains across the southeastern United States. Greenery's largest customer, Publics, has requested that Greenery begin providing food and food ingredients in stand up pouches, similar to the photo below.
Publics wants to begin selling two varieties of soup, tomato paste, and a new product that they have nicknamed ‘protein sludge', which is similar in nutritional value to a protein bar, but in a paste form. The soup and tomato paste will be existing Greenery products in new packaging, but the protein paste will need to be developed, based only on a homemade product that a Publics executive encountered while on a health retreat. Having noted the 7% annual growth rate in pouch products over the past several years, Publics has decided to quickly begin selling these products, feeling that they missed an opportunity by not selling them previously.
Publics' request of 10,000 pouches by July 1st (6 months away) will be challenging since ABC has never made food in pouches. Publics estimates that sales for the first year will be $500,000 total for the pouch products. Greenery can purchase the equipment to package the products for $400,000, including training. The manufacturer has stated that the machinery can be set up and employees trained in 4 months. The machine would have an annual capacity large enough to make four times the amount forecasted for the first year. Alternatively, Greenery can outsource the production and packaging of the products. Capacity is not an issue for outsourcing, as there are several potential suppliers. Assuming sales of $500,000 from Publics in the first year, Greenery's margin will be $100,000 if they make the products in-house and $50,000 if they outsource. Greenery can also choose not to make these products. Greenery's COO is concerned about Publics' perception of the company because Greenery and Publics have faced some inventory problems recently due to poor performance on replenishment orders. Some Greenery products have been out of stock at Publics, while others have gone out of their shelf life due to excess inventory.
Answer each question in 250 words:
Question 1. As Greenery's COO, you need to make a recommendation to the CEO about what option Greenery should follow. They can produce in-house, outsource production, or pass on the offer. Provide a detailed justification of your decision using material from throughout SCM 5425.
Question 2. Based on your response to the previous question, the CEO has asked you to determine a set of metrics to use to ensure that you have made the correct recommendation. Following the SCOR model, your job is to select a set of key performance indicators (KPI's) to track the overall state of the new business opportunity so that you can be sure that your decision continues to be the right one. Please enter the metrics in a table or list, which will not count toward your word count, and then provide a brief explanation explaining your rationale and goals in setting your KPI's.
Question 3. Medscom, a small pharmaceutical manufacturer, was recently contacted by the legal department of the Sunny State Hospital System. Sunny State's lawyer claimed that through a quality control audit, it was discovered that one of Medscom's products, Xeliphan, contained trace amounts of a poisonous chemical, which caused several patients to become seriously ill. Medscom subsequently performed a quality audit and found the source of the problem to be a chemical compound that was outsourced to Kemmix a small supplier in India. Medscom has also corrected its own quality control process to make sure that this type of error does not happen again. Despite the fact that Medscom has fixed the quality issue, Sunny State is still threatening to sue Medscom for $1 million on the grounds that the use of Xeliphan in the hospital has caused extra expenses and damage to the hospital's reputation since the story made it onto the local news. A fee of $1 million would cause Medscom to show a loss for the year, although it would not put the company out of business. A clause in Medscom's contract with Kemmix states that Medscom can pass any damages from Kemmix's products on to Kemmix. However, a $1 million fee would bankrupt the company.
Your job is to make a recommendation to Medscom's CEO about how she should handle the situation, both at the present time and for the future to prevent this type of problem from occurring again. Consider all of the topics covered in SCM 5425 as sources of solutions.