Global Supply Chain Management & Inventory Management

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Case Study #3: Global Supply Chain Management and Inventory Management

A diamond in the rough

Vonkel Enterprises have recently purchased Thembeka, a company that specializes in the sale and distribution of
gold and diamond jewelry. This company designs, manufactures and markets fine jewelry throughout South Africa. It
had previously been a family run business, and following the death of the founder and CEO, family members decided
to sell the enterprise. Vonkel saw the potential for this business and purchased it, with intentions of improving supply
chain performance.

The domestic supply chain involves inbound shipments of raw materials from a number of small suppliers to a
manufacturing location in Pretoria. Once the jewelry has been created, shipments are sent through a transportation
intermediary to retail stores in Cape Town, Durban and Johannesburg. The challenges Thembeka face are common
to the fashion industry. Rapidly changing styles and preferences require the company to react quickly and adapt
designs to suit consumer demands. The peak demand periods occur throughout December and in mid-February, with
a smaller demand peak in the spring. The Thembeka brand and style is well established throughout South Africa, and
Vonkel decides that it will keep the name to maintain brand loyalty.

In addition to making supply chain improvements, Vonkel Enterprises are planning to export their products to the UK.
The jewelry market has experienced a steady increase over the past ten years, and has continued to grow over the
past year despite predictions for an overall industry slow-down. South Africa’s participation in the Kimberley Process
should help accelerate Vonkel’s move to the British market. The Kimberley Process is an international certification
scheme designed to regulate and prevent the trade in conflict diamonds. Although a certificate is needed in the export
of rough diamonds, Vonkel can provide a warranty on their polished diamond jewelry that states the gems have been
purchased from legitimate sources and are in compliance with United Nations resolutions. Vonkel are in the process
of contacting a number of British wholesalers to try and broker an export arrangement.

All that glitters?

Despite Vonkel’s desire for expansion and growth, Thembeka have experienced an overall profit loss for the past five
years. An initial investigation into the company’s finances reveal that there is an overall business turnover of about
$63 million (USD), and the cost of inventory alone is $27 million USD. Over 80 percent of the company’s total
inventory consists of finished product. Inventory is inconsistently categorized, which also leads to a longer lead time
for the organization to fulfill orders. Most of the inventory is held in various retail outlets that Thembeka own, and in
franchises where Thembeka own the stock.

Losses in sales were due primarily to the inability to deliver timely orders because the stock could not be located
efficiently from their inventory. This resulted in frequent stock-outs during peak demand periods. In addition, designs
were not well aligned to customer preferences, which meant that there were higher volumes of product left in
inventory. There was very poor visibility of stock in relation to overall sales and no integrated and efficient method to
track shipments, delivery, and items in stock. In addition, Vonkel identified over a million USD in stock that Themeka
had accumulated over the past twelve months.

Gold mining…

Vonkel executives have decided to investigate potential distributors and retailers in the UK while working on their
supply chain improvements. A strategy is being developed to address the critical supply chain problems while an
exporting plan is being created to initiate the company’s international growth strategy.

1. Which activities should Vonkel undertake to effectively manage their inventory?

2. Which supply chain information system would help Vonkel address their immediate issues?

Each question is worth 2.5 marks.