22 October 2014

4.782 International
Supply Chain
Management
Excesos Supply Chain

Kristeen Mae Saguinsin

Student ID# 20140342
Word Count: 2,901

Lecturer: Professor Nevan Wright

Table of Contents
1.0

Executive Summary ........................................................................................................ 3

2.0

Introduction ..................................................................................................................... 4

3.0

Analysis of Excesos Current Situation .......................................................................... 4

4.0

Recommended Courses of Action ................................................................................ 10

5.0

References .................................................................................................................... 14

1.0 Executive Summary

This report presents how Exceso Corporation found itself in an unfavourable
situation. The report also gives a thorough analysis of the companys strengths and weakness.
Exceso Corporations strengths include having an established brand, a mass production
capability, a strong distribution network and well-experienced manpower. The weakness of
the company, which leads to its situation, has also been outlined in this report. These
weaknesses comprise of illogical forecasting, low price marketing strategy, lack of
information transparency and failure to comprehend lean manufacturing which further leads
to bullwhip effect due to Excesos activities having a domino effect all throughout the
company and its supply chain system. A brief description of a possible future of Exceso, if its
current approach continues, has also been incorporated in this report. Finally, a recommended
course of actions has been provided. These recommendations include the utilization of
Vendor Managed Inventory System, Push-Pull Strategy, Sales and Operations Planning,
cease of Trade Loading and simply making the company employees happy.

2.0 Introduction
Hiroyuki Hirano once said The words just for now are the origin of all waste. (The
Lean Thinker, n.d.). As the appointed Supply Chain Consultant for Exceso Corporation, I was
given the opportunity to objectively analyse the current supply chain operating system of
your company. During this course, several activities that are quite short term goal oriented
have come to light which evidently causes great concern. It is also apparent that Exceso has
come in a quite unfavourable situation due to several factors such as illogical sales targets,
unreasoned

market

approach,

lacking

of

information

transparency,

non-optimal

manufacturing system and trade stuffing (Butman, 2002). However, after a thorough analysis
of the situation, it is evident that Exceso still has the capability of emerging from this
predicament.
This report will evaluate the companys current state, including the factors that lead to
its current unfavourable situation. In order to fully assess Excesos case, the positive elements
within the companys supply chain and operational activities will be also counted in. Aside
from that, the concept of bull whip effects in relation to Exceso Corporation will be
examined. Moreover, the possible future or lack thereof, of the company on its current
manufacturing approach if continued will be scrutinized. Lastly, several optimal
recommended courses of action, which would help Exceso Corporation to get out from its
current state, will be provided.

3.0 Analysis of Excesos Current Situation

Excesos ClickZipPlus has been the companys flagship product. Even if its still
considered as the market leader of its kind, Exceso shouldnt ignore the fact that competitors
can easily take over it position. Currently, Exceso has been experiencing drastic issues on its

operations especially on its manufacturing, supply chain and distribution management

(Butman, 2002).
The issue started from the time the companys Head of Sales provided unsubstantial
nine percent sales growth forecast for the current quarter. However, due to the combination
of the current economic situation and the never-ending low price demand from retailers,
Exceso has woken up on the reality that they could only meet a three percent sales growth.
This factor has put a considerable strain to the companys manufacturing operation. It was
also reported that there had been regular unexplainable machine breakdown due to the factory
running at its full capacity. Regrettably, the issue didnt end there. The CEO of Exceso
conceals information to the analysts about the companys real quarterly situation.
Consequently, the shareholders have been constantly kept on the dark about Exceso
unfavourable state (Butman, 2002).
In hope of still reaching the nine percent sales target, the Sales Department of Exceso
resorts to a tactical approach of providing low ball pricing and huge discounts to the retailers.
In addition to that, the Sales Department has committed to its customers additional incentives
such a flexible payment terms and additional co-operative free standing inserts (FSI) or
promotional coupons with no added cost. It was also confirmed the Exceso practice trade
loading to boost its sales (Butman, 2002).
Strengths of Exceso
i. Established Brand
As a market leader, Excesos ClickZipPlus is undeniably has an established network
and brand. This means that it is a possibility that despite the current economic market and
even having substitute brands available at a lower price or even at a lower quality, consumers

could be more inclined to purchase ClickZipPlus. Having an established brand and is critical
in a smooth supply chain management as it is favourable to have a recognized receiving end
of the supplies.
ii. Mass Production Capability
It is evident that Exceso has an advantageous capability of economies of scale. An
economy of scale basically means being able to have a lower unit cost with more quantity of
product produced (Simchi-Levi, Kaminsky, & Simchi-Levi, 2008). This enables Exceso to
have the capability of large volume and fast scale production. This is evident on the agreed
terms with Flemings ValuMarts order of 3,000 units Regency Brands order 40,000 units at a
deep discount price.
iii. Strong Distribution Network
As from an analysis of the most recent business transaction with Flemings ValuMart,
it is clearly manifested that that Exceso, together with its mass production capabilities, also
has a strong distribution network. This is reflected on the package offer of delivering the high
volume of products with an exceptional short lead time, a delivery time frame within the
same week, while altogether an assumed reasonable profit margin (Butman, 2002). In normal
cases, a firm who lacks strong distribution network would have a difficult time making and
delivering a huge volume of product in such a short time period of time.
iv Manpower
The company has the competitive advantage of having a substantial number of sales
people as evident during the reported sales conference on Thursday. Aside from having a
well-equipped Head of Sales, Exceso also have extensive sales representatives in every
region, promotional, product display, sales forecast and numerous account staff (Butman,

2002). This is crucial for manufacturing companies such as Exceso who focuses on what I
perceived as a manufacturing push strategy.
Weaknesses of Exceso
i. Forecasting
It was evident that the problem rose from poor demand forecasting ability of the Sales
Manager together with Exceso complete manufacturing reliance this forecast. Regrettably,
forecasting stays as what it is: a forecast. It is understandable that forecasting is difficult task
to do. Nevan Wright (2012) explained that this is due to fact that data used to reach a forecast
is taken from the past. These data can easily be swayed by different situations, trends and
circumstances. Moreover, it was analysed that there are no precise and scientific ways of
knowing that whatever happened in past will happen again in the future.
ii. Low Price Marketing Strategy
Exceso resorting to extreme low price marketing strategy is of nature that I perceived
as unnecessary and reckless. Understandably, the company rely on this in order to meet the
target, which is in the first place is complete illogical. Due to this extreme focus on reaching
the forecasted sales target, the Sales employees of the company focus on low ball pricing
strategy, which even the Sales Manager is quite unclear whether or not a sufficient profit
margin is still attained after cost of sales (Butman, 2002). In addition that, this extreme low
price marketing strategy may give way to retailers or distributing companies to withhold
discounted stocks in order to resell on a higher price and higher margin. Worse, they can even
deal with diverters. Diverters are described as someone who buys large volume of product
on a large discount but with real intention of reselling the product cheaper in its own network

or even within the same country where the purchase was made (DeKieffer & Horgan, PLLC
(n.d.). In Exceso Corporations case, this is precisely what happened.
iii. Information Transparency
It was clearly manifested that the CEO of Exceso himself doesnt practice information
transparency. Aside from bad forecasting as one main cause of companys current
unfavourable situation, the lack of accurate information flow from the company to its
shareholders has also contributed to the mess that Exceso found itself at. The Exceso
Management and its analysts assured the companys shareholders a specific sales growth rate.
This leads to the manufacturing department producing certain high volume of products,
which also leads to sales department having to employ several tactics, may it be logical or not
just in order to meet the target, which further leads to an undesirable behaviour of the
retailers and distributors (Butman, 2002).
Likewise, lack of information transparency has a corruptive effect on the corporation
internally. Based from the conversation of the CEO and the Sales Managers, it was confirmed
that Exceso deals with trade loading (Butman, 2002). Trade loading or what is commonly
known as channel stuffing is an illegal practice wherein thee firm force the sales of products
more than what the distribution channel can handle. This artificially and temporarily makes a
firm and its shares more attractive for investors (SEC Whistle Blower Program, n.d.).
iv. Muda
Clearly, Exceso Management does not understand the concept of Lean
Manufacturing. Lean Manufacturing is essentially focused on finding and eradicating waste
or Muda (Basu & Wright, 2003). Based from my analysis, Exceso also resort to what is
described as full capacity factory operation (as cited from Butman, 2002) in order to meet the
forecasted demand which alone required extreme measure to fully reach.

As quoted by from the CEO of Exceso during a conversation with the Sales Manager
regarding not meeting sales target: I hear this every quarter, and every quarter we make the
number (Butman, 2002, p.32). From that statement alone, it was evident, as has been
previously mentioned, that the Sales Team have to do everything in their capability to push
the sales to meet target, which is in the first place, is based from an illogical forecast. This
system put a great strain on Excesos supply chain system. This is further manifested on the
reported bottle neck in the factory as a direct result of regular unexplainable equipment
breakdown which most likely due to inane constant full capacity operation (Butman, 2002).
v. Domino effect
As per an objective exploration of Excesos current situation, the firm does not
understand that all actions, regardless how drastic or normal it may, would have domino
effect on the companys supply chain system.

Unmistakably, Exceso lacks proper

comprehension of the potential effects of forecasting reliance towards low price marketing
strategy and push system strategy to lack of information transparency, trade loading and nonlean manufacturing. Exceso does not grasp that all of these factors leads to a bullwhip effect.
Bullwhip effect happened when information about consumer demand becomes increasingly
distorted as it moves upstream in the manufacturing process. (Reese, 1995). Several factors
can cause bullwhip effect but in Excesos situation, this occurred from the direct result of
higher discount on bigger orders, retailers may choose to build up stock, which would
potentially lead to non-re-ordering in the following months (Reese, 1995). Not only this
provide Exceso an inconsistent demand pattern, but also an alteration and creation of a more
illogical future sales forecast which would lead to the sales department doing the same
thing year and year.

If Exceso continuous on its current path of full capacity operation especially on the
current economic market, It wont be a surprise that either the company will have to face
Securities and Exchange Commission due to trade loading or will go bankrupt due to market
saturation. Either way, if this pattern continues, Exceso Corporation would most likely die.

4.0 Recommended Courses of Action

In light of the mentioned strength and weaknesses of Exceso, I will provide several
recommended course of action that would enable the company to have a smoother and
consistent supply chain management.
i. Vendor Managed Inventory System
Vendor Managed Inventory System would help Exceso to have a more accurate and
manageable demand forecast. It is through this system wherein Exceso, as the manufacturer,
will handle the inventory system of its customers like Fleming ValuMart in form of refilling
and maintaining stock at a reasonable level which would therefore prevent inventory shortage
for the customers and also give the supplier a real picture of goods movement along the
supply chain. Aside from both parties benefitting from this, a strong relationship between the
manufacturer and its customer can also be created as both parties shares accurate, clear and
transparent information which may enable both parties to give a certain level of trust to each
other and a consistent flow profit for both sides (Frahm, 2003).
In order achieve an effectual VIM system with its customers, Exceso needs to
highlight not only how this is beneficial for its customers such as Fleming ValuMart, but also
what Exceso was expecting to attain from this partnership.

Moreover, Exceso and its

customer need to understand that this partnership will only be sustainable if there is an honest
and willingness to share a constant and continuous information and communication between

both parties. This would be especially advantageous in cases of oversights and

misunderstanding once during VMI implementation.
ii. Push Pull Strategy
Based from what I have observed, Exceso is inclined on the push based strategy. It
would be quite typical to suggest shifting from push based to pull based system especially on
light of its current unfavourable situation. However, Excesos flagship product: ClickZipPlus
is a non-differentiated product and has an uncertain and inconsistent demand. Therefore, an
application of Push-Pull Strategy may yield a great result for Exceso. Push-Pull Strategy is
defined by Simchi-Levi, Kaminsky, & Simchi-Levi (2008) wherein typically, the initial
stages are operated in push based manner, while the remaining stages employ a pull-based
strategy (p. 190). Through this, Exceso would have the capability of complementing and
harmonising the beneficial effect of pull and push based system which may include factors
such as higher market share, faster stock turnover, while having less waste or overstocking
(Marmulak, 2011).
iii Sales and Operations Planning,
Understandably, the flow of information and objectives within the Exceso itself is of
great struggle. This can be a result of having numerous departments within the company
itself. Each of these department, may it be Sales. Marketing, Logistics, Finance or Operation,
may have different interpretation of the company goal and consequently have its own plans or
methods of achieving these perceived goals.
In order to surpass this predicament, an efficient use of Sales and Operations Planning
is essential. Wright (2012) describes Sales ad Operation Planning (S&OP) as the integrator
of Forecasting, Capacity Management, Scheduling, Inventory Management and Supply Chain

Management (p. 212). Through S&OP application, Exceso would be able to have an optimal
output, which would help to alleviate the damaging domino effect that greatly affect the
companys whole system. Wright (2012) also added that by doing so, a company who applies
S&OP would have a more dynamic, effectual and simplify operating system all through the
organization. This basically means that S&OP would enable every single departmental
activity in Exceso to be in the same page which could therefore lead to a high potential end
result of better company profitability.
iv. Stop Trade Loading
It was evident from the information exchange of Exceso CEO and Sales Manager that
the company constantly practice trade loading. Ahmad, Jansen, & Frank (2003) identifies
trade loading on their Common Financial Fraud Scheme Report (2003) as the practice of
offering deep discounts, extended payment terms or other concessions to customers to induce
the sale of products in the current period, when they would not have not been otherwise sold
until later periods, if at all. (p.20). The operations behavioural pattern of Exceso also creates
the notion that trade loading has been employed in order to meet the illogical sales growth
forecast year after year. The Sales Manager has raised the issue that the company needs to
stop this practice. However, the CEO has declared that it would do so when the timing is
right (Butman, 2002, p. 34). Unfortunately, in this practice, the time is never right. Once a
company uses trade loading as its basis for the year after year forecast, then it would be of
extreme difficulty to get out.
As previously mentioned, if Exceso continuous thispractice, it wont be out of
question that sooner or later, the Securities and Exchange Commission would get caught of
this unsavoury practice, just like how they did with companies such as Lucent Technologies
and Sunbeam Corporation (As cited from Byrnes, 2002).

v. Make Your People Happy

The last recommendation I would provide is one of the most common important
resource that has been neglected of all. Most companies, especially short term focused ones
like Exceso, fails to recognise the importance of motivating its manpower.

Yes, fair

remuneration is of great importance. However factors such as clear criterias of standard

practice and feedback conceptualisation are also critical (Wright, 2012). During the course of
my observation on the Sales Department meeting, it is a sentiment that Exceso are not very
profit margin oriented anymore. It is also evident that the sales team are quite uncomfortable
to raise the issue of difficulty in meeting the target for the fear of being fired (Butman, 2002).
Consequently, the sales people resort to irrational resolution such as low ball pricing which,
as we all know gives way to diverters preying on Excesos vulnerability. Exceso needs to
understand that they need to create an affirmative, progressive and productive work culture
which would benefit the company on the long run.

5.0 References
Ahmad, J., Jansen, D., & Frank, J. (2003, May 7). Common Financial Statement Fraud
Scheme. Retrieved from
www.google.co.nz/url?sa=t&rct=j&q=&esrc=s&source=web&cd=6&cad=rja&uact=8&
ved=0CEMQFjAF&url=http%3A%2F%2Ffaculty.som.yale.edu%2Fshyamsunder%2FF
inancialFraud%2FFrankCommon%2520Financial%2520Fraud%2520Schemes%25207May%252003v1.doc&ei
=S8hGVJvfDaGdmwXvioKYCw&usg=AFQjCNG80e32wpI9kjFmyqYExHDbenjN8A
&bvm=bv.77880786,d.dGY
Basu, R., & Wright, J. N. (2003). Quality Beyond Six Sigma. Oxford: ButterworthHeinemann.
Butman, J. (2002, May). A Pain in the (Supply) Chain. Retrieved from
http://campus.udayton.edu/~jrs/promo/Exceso%20Case/exceso%20trade%20promotion
%20case.pdf
Byrnes, T. (2002, February 7). Too Many Thin Mints: Spotting The Practice of 'Channel
Stuffing'. Retrieved from http://online.wsj.com/articles/SB1013117089572671360
DeKieffer & Horgan, PLLC. (n.d.). Anti counterfeiting and Anti diversion. Retrieved from
www.dhlaw.com/PA_Anti_C.html
Frahm, S. (2003, March 5). Vendor Managed Inventory (VMI): Three Steps in Making It
Work. Retrieved from http://scm.ncsu.edu/scm-articles/article/vendor-managedinventory-vmi-three-steps-in-making-it-work
The Lean Thinker. (n.d.). Make a Rule / Keep a Rule. Retrieved from
http://theleanthinker.com/2012/04/21/make-a-rule-keep-a-rule/
Marmulak, G. (2011, March 31). Balancing Push and Pull Strategies. Retrieved from
http://www.scdigest.com/assets/Experts/Guest_11-03-31-1.php

Reese, J. (1995, March 1). Whang and Lee: Eliminating the Bullwhip Effect in Supply
Chains. Retrieved from http://www.gsb.stanford.edu/insights/whang-lee-eliminatingbullwhip-effect-supply-chains
SEC Whistle Blower Program. (n.d.). Reporting False and Misleading Revenue Statements.
Retrieved from http://www.secwhistleblowerprogram.org/securities-fraud/revenuestatements/
Simchi-Levi, D., Kaminsky, P., & Simchi-Levi, E. (2008). Designing and managing the
supply chain: Concepts, strategies, and case studies (3rd ed.). New York, NY:
Irwin/McGraw-Hill.
Wright, J. (2012). Operations and Supply Chain Service (1st ed.). Sydney, NSW: Cengage
Learning.