CASI: SI UDY LINGLI: SUI-l DRINKS COMPANY Zingle is a global soft drinks company with a 7 billion turnover and which is renowned for its zzy fruity drinks. |t manufactures globally at ve sites and supplies over 50 markets with its products. The company has a centralised sourcing team which manages global contracts. Many vital ingredients, including the flavours, are single-sourced. The company is a supporter of responsible sourcing and it promotes its sustainability policies in its marketing. Matt Lewis is the newly appointed global head of ingredients sourcing at Zingle. Orange avouring is a strategic purchase for Zingle. One of Matt's team, Dana Richards, is responsible for sourcing the orange flavouring for the highest volume selling product for Zingle. The budgeted spend for the orange avouring is 250 million annually. This is bought from Fruity Flavours, a UK company that has been reliably supplying Zingle for over 15 years. Dana is concerned because Fruity Flavours is constantly asking for invoices to be paid early and has recently asked for advance payment against the latest order. Without this, Fruity Flavours has indicated that it may be unable to supply the order due to cashow problems, and Zingle would run out of orange avouring within three weeks. Matt called an urgent meeting with Dana to discuss the issues with the supply of orange avouring. He asked Dana to prepare data for the meeting, on the last ve annual reports for Fruity Flavours. The data showed that price rises had been agreed at 5% each year during the last few years. Dana also conducted some research on the avours supply market ahead of the meeting and found that: 0 Fruity Flavours is the third largest supplier globally and is the biggest category of spend for Zingle; 0 six companies comprise 80% of the global supply ofthe avours market; . the largest company, Fruitz R Us, has received some bad publicity relating to its farming methods, which led to deforestation in South America; 0 the global market for fruit ingredients fluctuates, but the volumes used have been on a downwards trend for the last three years; 0 the second largest company, Citrus Stars, has recently lost its biggest contract to supply the world's largest beverages company, owing to its failing several quality audits; 0 the typical operating prot for the market is 25% and most of the top six companies achieve this. In addition, Dana has found that: 0 Zingle is the second largest buyer ofthe orange avouring globally; 0 Zingle has not run a competitive tender process for orange avouring since the contract with Fruity Flavours began 15 years ago; 0 the revenue and operating profits for Fruity Flavours are as follows: Revenue (Em) Operating prot (m) At the meeting, Matt and Dana realised that they would need to act quickly or risk being unable to manufacture Zingle's core product in just three weeks' time. Matt was particularly concerned about Fruity Flavours' nancial stability, but was also aware that otherwise, Fruity Flavours meets all of Zingle's supplier criteria. Matt and Dana have agreed that they need to carry out a tendering exercise for the orange avouring product. Matt has also decided that his priority in his new role is to develop a new sourcing strategy for selecting appropriate suppliers to address the potential risks in the supply chain. Matt knows he will also need to engage with Zingle's stakeholders to ensure that the sourcing process will continue to meet their needs. Page 4 of 8 D3 Exam Questions July 2018