ABC is a manufacturer of consumer products based in Singapore. They currently source most of their raw materials and components from extremely reliable suppliers in Singapore. Overall, they order 26,000 components from 1,400 suppliers. Deliveries are frequent and in small batches, and ABC does not hold much inventory. However, there has been increasing cost pressure in the last five years, and ABC is aware that they can source many of these materials at much lower costs from other countries (such as China).

The ABC Supply Chain Manager believes they manage two basic categories of products: 'Basic' consumer products which have steady sales each year, where the product designs only change every two or three years. There are relatively low-profit margins on the products. Sales can be predicted with a high degree of accuracy.

'Luxury' consumer products which are carefully branded and considered highly desirable by consumers. The products undergo frequent and significant design changes each year. There are higher profit margins on the products. Sales fluctuate and are difficult to forecast. Significant sales may occur on the release of new designs but quickly decrease to a more stable level after introduction.

The Supply Chain Manager is keen to evaluate other distribution strategies.

i) How does the proliferation of different product models with additional features make the supply chain more challenging to manage? (2.5 marks)

ii) Demand uncertainty influences supply chain design. Evaluate how ABC could manage the two distinct classifications of products ('basic' or 'luxury' items).

(2.5 marks)