3 Local neighbourhood shops are finding it increasingly difficult to compete with supermarkets. However, three years

ago, the Perfect Shopper franchise group was launched that allowed these neighbourhood shops to join the group

and achieve cost savings on tinned and packaged goods, particularly groceries. Perfect Shopper purchases branded

goods in bulk from established food suppliers and stores them in large purpose-built warehouses, each designed to

serve a geographical region. When Perfect Shopper was established it decided that deliveries to these warehouses

should be made by the food suppliers or by haulage contractors working on behalf of these suppliers. Perfect Shopper

places orders with these suppliers and the supplier arranges the delivery to the warehouse. These arrangements are

still in place. Perfect Shopper has no branded goods of its own.

Facilities are available in each warehouse to re-package goods into smaller units, more suitable for the requirements

of the neighbourhood shop. These smaller units, typically containing 50–100 tins or packs, are usually small trays,

sealed with strong transparent polythene. Perfect Shopper delivers these to its neighbourhood shops using specialist

haulage contractors local to the regional warehouse. Perfect Shopper has negotiated significant discounts with

suppliers, part of which it passes on to its franchisees. A recent survey in a national grocery magazine showed that

franchisees saved an average of 10% on the prices they would have paid if they had purchased the products directly

from the manufacturer or from an intermediary – such as cash and carry wholesalers.

As well as offering savings due to bulk buying, Perfect Shopper also provides, as part of its franchise:

(i) Personalised promotional material. This usually covers specific promotions and is distributed locally, either using

specialist leaflet distributors or loosely inserted into local free papers or magazines.

(ii) Specialised signage for the shops to suggest the image of a national chain. The signs include the Perfect Shopper

slogan ‘the nation’s local’.

(iii) Specialist in-store display units for certain goods, again branded with the Perfect Shopper logo.

Perfect Shopper does not provide all of the goods required by a neighbourhood shop. Consequently, it is not an

exclusive franchise. Franchisees agree to purchase specific products through Perfect Shopper, but other goods, such

as vegetables, fruit, stationery and newspapers they source from elsewhere. Deliveries are made every two weeks to

franchisees using a standing order for products agreed between the franchisee and their Perfect Shopper sales

representative at a meeting they hold every three months. Variations to this order can be made by telephone, but only

if the order is increased. Downward variations are not allowed. Franchisees cannot reduce their standing order

requirements until the next meeting with their representative.

Perfect Shopper was initially very successful, but its success has been questioned by a recent independent report that

showed increasing discontent amongst franchisees. The following issues were documented.

(i) The need to continually review prices to compete with supermarkets

(ii) Low brand recognition of Perfect Shopper

(iii) Inflexible ordering and delivery system based around forecasts and restricted ability to vary orders (see above)

As a result of this survey, Perfect Shopper has decided to review its business model. Part of this review is to reexamine

the supply chain, to see if there are opportunities for addressing some of its problems.

Required:

(a) Describe the primary activities of the value chain of Perfect Shopper. (5 marks)

4 David Silvester is the founder and owner of a recently formed gift packaging company, Gift Designs Ltd. David has

spotted an opportunity for a new type of gift packaging. This uses a new process to make waterproof cardboard and

then shapes and cuts the card in such a way to produce a container or vase for holding cut flowers. The containers

can be stored flat and in bulk and then simply squeezed to create the flowerpot into which flowers and water are then

put. The potential market for the product is huge. In the UK hospitals alone there are 200,000 bunches of flowers

bought each year for patients. David’s innovative product does away with the need for hospitals to provide and store

glass vases. The paper vases are simple, safe and hygienic. He has also identified two other potential markets; firstly,

the market for fresh flowers supplied by florists and secondly, the corporate gift market where clients such as car

dealers present a new owner with an expensive bunch of flowers when the customer takes delivery of a new car. The

vase can be printed using a customer’s design and logo and creates an opportunity for real differentiation and impact

at sales conferences and other high profile PR events.

David anticipates a rapid growth in Gift Designs as its products become known and appreciated. The key question is

how quickly the company should grow and the types of funding needed to support its growth and development. The

initial financial demands of the business have been quite modest but David has estimated that the business needs

￡500K to support its development over the next two years and is uncertain as to the types of funding best suited to

a new business as it looks to grow rapidly. He understands that business risk and financial risk is not the same thing

and is looking for advice on how he should organise the funding of the business. He is also aware of the need to avoid

reliance on friends and family for funding and to broaden the financial support for the business. Clearly the funding

required would also be affected by the activities David decides to carry out himself and those activities better provided

by external suppliers.

Required:

(a) Provide David with a short report on the key issues he should take into account when developing a strategy

for funding Gift Designs’ growth and development. (10 marks)

(b) Explain how Perfect Shopper might re-structure its upstream supply chain to address the problems identified

in the scenario. (10 marks)

(b) What advantages and disadvantages might result from outsourcing Global Imaging’s HR function?

(8 marks)

(c) Explain how Perfect Shopper might re-structure its downstream supply chain to address the problems

identified in the scenario. (10 marks)

(b) Using models where appropriate, what are likely to be the critical success factors (CSFs) as the business

grows and develops? (10 marks)

(b) Assuming that the acquisition proceeds, what steps will Datum Paper Products need to take to build a shared

culture in the two companies? (10 marks)

4 The country of Europia has an extensive historical and industrial heritage. It has many tourist sites (such as castles,

palaces, temples, houses and factories) which attract visitors from home and abroad. Most of these tourist sites have

gift shops where visitors can buy mementos and souvenirs of their visit. These souvenirs often include cups, saucers,

plates and other items which feature a printed image of the particular tourist site.

The Universal Pottery Company (UPC) is the main supplier of these pottery souvenir items to the tourist trade. It

produces the items in its potteries and then applies the appropriate image using specialised image printing machines.

UPC also supplies other organisations that require personalised products. For example, it recently won the right to

produce souvenirs for the Eurasian Games, which are being held in Europia in two years time. UPC currently ships

about 250,000 items of pottery out of its factory every month. Most of these items are shipped in relatively small

packages. All collections from the factory and deliveries to customers are made by a nationwide courier company.

In the last two years there has been a noticeable increase in the number of complaints about the quality of these

items. The complaints, from gift shop owners, concentrate on two main issues:

(i) The physical condition of goods when they arrive at the gift shop. Initial evidence suggests that ‘a significant

number of products are now arriving broken, chipped or cracked’. These items are unusable and they have to be

returned to UPC. UPC management are convinced that the increased breakages are due to packers not following

the correct packing method.

(ii) Incorrect alignment of the image of the tourist site on the selected item. For example, a recent batch of 100 cups

for Carish Castle included 10 cups where the image of the castle sloped significantly from left to right. These

were returned by the customer and destroyed by UPC.

The image problem was investigated in more depth and it was discovered that approximately 500 items were

delivered every month with misaligned images. Each item costs, on average, $20 to produce.

As a result of these complaints, UPC appointed a small quality inspection team who were asked to inspect one in

every 20 packages for correct packaging and correct image alignment. However, although some problems have been

found, a significant number of defective products have still been delivered to customers. A director of UPC used this

evidence to support his assertion that the ‘quality inspection team is just not working’.

The payment system for packers has also been such an issue. It was established ten years ago as an attempt to boost

productivity. Packers receive a bonus for packing more than a target number of packages per hour. Hence, packers

are more concerned with the speed of packing rather than its quality.

Finally, there is also evidence that to achieve agreed customer deadlines, certain managers have asked the quality

inspection team to overlook defective items so that order deadlines could be met.

The company has decided to review the quality issue again. The director who claimed that the quality inspection team

is not working has suggested using a Six Sigma approach to the company’s quality problems.

Required:

(a) Analyse the current and potential role of quality, quality control and quality assurance at UPC. (15 marks)

(c) Assess the advantages and disadvantages to Datum Paper Products taking the greenfield option as opposed

to the acquisition of Papier Presse. (15 marks)

(b) Using relevant evaluation criteria, assess how achievable and compatible these three strategic goals are over

the next five years. (20 marks)