MINI CASE 2

ODPG - _Mini Case: Why are we Losing Market Share?

"A Porter's what" Jenny said, looking impatient as she glanced over at Carver.

"J_e_n_n_y_,_ _i_t_'s_ _c_a_l_l_e_d_ _a_ _P_o_r_t_e_r_'s_ _F_i_v_e_ _F_o_r_c_e_s_,_ _n_a_m_e_d_ _a_f_t_e_r_ _P_r_o_f_e_s_s_o_r_ _M_i_c_h_a_e_l_ _P_o_r_t_e_r_,_ _f_r_o_m_ _H_a_r_v_a_r_d_ _B_u_s_i_n_e_s_s_ _S_c_h_o_o_l_" _C_a_r_v_e_r_ _r_e_p_l_i_e_d_,_ _e_m_p_h_a_s_i_z_i_n_g_ _t_h_e_ _w_o_r_d_ _Harvard.

Carver knew Jenny would be skeptical and if she agreed to take time to go through this process, it better be worth her while. Jenny Pang was the Chief Financial Officer for ODPG and had been with the company for almost 40 years. She had met Ivan (the original owner) when she was fresh out of university and he hired her on the spot, without even an interview. Ivan always said he felt right about her fit in the company and knew she would steer the organization correctly. Jenny, now in her mid 7_0_'s_ _n_e_v_e_r_ _f_o_r_g_o_t_ _I_v_a_n_'s_ _t_r_u_s_t_ _i_n_ _h_e_r_ _a_n_d_ _d_i_d_ _i_n_d_e_e_d_ _s_t_e_e_r_ _t_h_e_ _s_h_i_p_ _t_h_r_o_u_g_h_ _s_o_m_e_ _t_u_r_b_u_l_e_n_t_ _t_i_m_e_s_._ _

However, this latest year had her frustrated. Business had changed and it was all about performance metrics and fancy presentations. For Jenny, she wanted to see hard facts, like in the old days. How they could be running a company with a declining gross margin was not good business in her mind. The fact that they did not even know why the gross margin declined in the first place, was even more troubling to her. Customer payment terms were also a huge problem in her mind, which no one seemed to care about. Suppliers were asking them for faster payment and customers continued to extend terms. Even shipping to some countries posed risks, that the Sales Team simply ignored.

"A_l_r_i_g_h_t_ _M_r_._ _P_a_r_k_s_" _J_e_n_n_y_ _r_e_p_l_i_e_d_._ _"I_ _w_i_l_l_ _t_r_u_s_t_ _y_o_u_r_ _p_r_o_c_e_s_s_,_ _b_u_t_ _I_ _w_i_l_l_ _a_d_v_i_s_e_ _y_o_u_ _t_h_a_t_ _m_y_ _t_i_m_e_ _is limited and I would prefer to get right down to the business on hand - _w_e_ _h_a_v_e_ _a_ _c_o_m_p_a_n_y_ _t_o_ _f_i_x_,_ _a_s_ _y_o_u_ _k_n_o_w_"._ _

"I_ _s_e_c_o_n_d_ _t_h_a_t_ _C_a_r_v" _s_a_i_d_ _B_a_r_r_y_._ _"L_e_t_'s_ _g_e_t_ _t_h_i_s_ _m_o_v_i_n_g_ _a_s_ _I_ _h_a_v_e_ _a_ _m_e_e_t_i_n_g_ _w_i_t_h_ _t_h_e_ _W_C_C_A_" _l_a_t_e_r_ _t_h_i_s_ _afternoon.

"S_u_r_e_ _B_a_r_r_y_" _r_e_p_l_i_e_d_ _C_a_r_v_e_r_._ _"W_h_o_'s_ _t_h_e_ _W_C_C_A_"?_ _

"I_t_'s_ _t_h_e_ _W_e_s_t_e_r_n_ _C_a_n_a_d_i_a_n_ _Construction Association. They use a lot of standard parts but they have an erratic ordering system. We are thinking about setting up an inventory exclusively for them in Calgary DC and a separate cloud based s_y_s_t_e_m_ _t_o_ _o_r_d_e_r_ _f_r_o_m_ _p_h_o_n_e_s_,_ _e_t_c_._ _I_t_'s_ _p_r_e_t_t_y_ _s_l_i_c_k_"._ _

"S_o_u_n_d_s_ _g_r_e_a_t_ _B_a_r_r_y_._ _H_a_v_e_ _w_e_ _e_v_e_r_ _d_o_n_e_ _a_n_y_ _d_e_v_e_l_o_p_m_e_n_t_ _f_o_r_ _s_m_a_r_t_ _p_h_o_n_e_ _a_p_p_l_i_c_a_t_i_o_n_s_ _o_r_ _a_n_y_ _o_t_h_e_r_ _o_m_n_i_ _c_h_a_n_n_e_l_ _r_e_q_u_i_r_e_m_e_n_t_s_ _f_o_r_ _c_l_i_e_n_t_s_?_" _asked Carver.

"N_o_" _r_e_p_l_i_e_d_ _B_a_r_r_y_._ _"T_h_i_s_ _w_o_u_l_d_ _b_e_ _a_ _b_r_a_n_d_ _new service for us and its light years ahead of our competition. It provides that value add we need Carver. Now we could really justify a higher price b_a_s_e_d_ _o_n_ _t_h_i_s_ _t_y_p_e_ _o_f_ _s_e_r_v_i_c_e_._ _P_r_o_b_l_e_m_ _i_s_ _I_ _d_o_n_'t_ _e_v_e_n_ _k_n_o_w_ _h_o_w_ _t_h_e_ _c_o_s_t_i_n_g_ _w_o_r_k_s_ _s_o_ _i_t_'s_ _a bit of a shot i_n_ _t_h_e_ _d_a_r_k_ _r_i_g_h_t_ _n_o_w_._" _

"M_r_._ _S_i_l_v_e_r_b_e_r_g_" _J_e_n_n_y_ _said sternly a_s_ _s_h_e_ _t_u_r_n_e_d_ _t_o_ _a_d_d_r_e_s_s_ _h_i_m_._ _"O_u_r_ _g_r_o_s_s_ _m_a_r_g_i_n_ _i_s_ _d_e_c_l_i_n_i_n_g_ _f_o_r_ _reasons we are unsure of. As a result indirect labour has increased due to the hiring of Mr. Parks who has yet been unable to tell us why this occurring. Now, you want to provide another product to our customers, and you are not able to take the time to consider a proper cost? I find that method of selling i_r_r_e_s_p_o_n_s_i_b_l_e_"._ _

Time for a break, thought Carver, as he watched Barry shift un-comfortably in his seat.

"O_k_ _G_u_y_s_,_ _l_e_t_'s_ _t_a_k_e_ _a_ _q_u_i_c_k_ _1_0_ _m_i_n_u_t_e_s_ _b_e_f_o_r_e_ _w_e_ _s_t_a_r_t_" _C_a_r_v_e_r_ _s_a_i_d_ _t_o_ _J_e_n_n_y_ _a_n_d_ _B_a_r_r_y_._ _

Carver sat down and looked at the reports he accumulated in order to do his SWOT, Porters 5 Forces and PESTLE analysis. He wanted to make sure the company was driving toward the strategy Suhani wanted. His responsibility was to grow the business in 1) Financial 2) Sales & Operations 3) Team (Employees) and 4) Community. So far, he was not doing great with Financial but he knew he could turn this business around if he understood the context from a macro perspective.

He clicked on his summary report from Grand View Research (reference: Grandviewresearch.com/industry-analysis/global-plastics-market#)

Report Overview

The global plastic market size was valued at USD 568.9 billion in 2019 and is expected to grow at a compound annual growth rate (CAGR) of 3.2% from 2020 to 2027. Increasing plastic consumption in the construction, automotive, and electrical and electronics industries is projected to drive the market for plastic over the forecast period. Regulations to decrease gross vehicle weight to improve fuel efficiency and eventually reduce carbon emissions have promoted the use of plastics as a substitute to metals, including aluminum and steel, for the manufacturing of automotive components. This is further expected to favor the rising demand for plastics in automotive applications over the forecast period.

The growth of the construction industry in emerging markets such as Brazil, China, India, and Mexico has been instrumental in fueling the demand for plastics during 2018 and 2019. However, the recent outbreak of COVID-19 has hampered the demand for plastic in various applications including construction, automotive, electrical and electronics, and consumer goods owing to a halt in manufacturing operations, restrictions on supply and transport, and economic slowdown across the globe.

Growing population coupled with rapid urbanization and industrialization in emerging economies has been impelling federal governments to increase their construction spending to cater to increasing infrastructure needs. Rising construction spending by governments, particularly in China and India, will drive the demand for plastics in infrastructure and construction applications.

Stringent regulations regarding depletion and recyclability of conventional materials such as metal and wood are anticipated to drive the demand for plastic from construction industries in insulation, pipes, cables, floorings, windows, and storage tanks. Polymer fittings are also generally quite simple and easy

to install, compared to metals or wood, with a wide range of color combinations, adding to their aesthetic appeal.

Product Insights

In terms of revenue, polyethylene dominated the market with a share of 25.7% in 2019. This high share is attributable to the rising demand from the packaging sector, which includes containers and bottles, plastic bags, plastic films, and geomembranes. Polyethylene is majorly categorized into two types, namely high-density polyethylene (HDPE) and low-density polyethylene (LDPE). Low-density polyethylene is used as a packaging material in consumer goods, food and beverage, and industrial packaging applications. Whereas, HDPE is widely used in laundry detergent packaging, milk cartons, cutting boards, and garbage bins.

Rising demand for packaged food, trays, bottles for milk and fruit juices, crates, caps for food packaging, drums, and other liquid food packaging owing to restrictions on the movement of people to reduce the spread of COVID 19 across the world is expected to drive the demand for polyethylene in the coming years.

Application Insights

In terms of revenue, packaging dominated the market with a share of 36.5% in 2019. This high share is attributable to great demand from various end-use industries including medical, construction, and electrical and electronics in emerging economies. The impact of the coronavirus pandemic on the packaging industry is expected to remain moderate over the forecast period. The demand for packaging for healthcare products, groceries, and e-commerce transportation is expected to increase sharply, while the demand for luxury, industrial, and some B2B-transport packaging might show sluggish growth owing to several restrictions such as stoppage of industrial production and lockdown of cities, imposed by various governments across the world.

In addition, a decline in consumer spending due to the economic slowdown caused by novel coronavirus is further expected to hamper the growth of various end-use industries including construction, automotive, and electrical and electronics in the coming year. This, in turn, is anticipated to hinder the growth of the plastic market over the forecast period.

Regional Insights

Asia Pacific dominated the market with a share of 20.3% in 2019, in terms of revenue. This is attributable to the high economic development and consequent rise in consumer spending in emerging economies such as India and Japan along with Southeast Asian countries. Rapid industrialization and an increase in the skilled workforce are benefitting the growth of the manufacturing sector in the region, which in turn, is further fueling the demand for plastics in the region.

However, the recent outbreak of COVID-19 in countries such as China, India, Japan, Australia, Indonesia, Thailand, and others are anticipated to hamper the product demand majorly in construction, automotive, electrical and electronics, and consumer goods applications. The outbreak has resulted in the slowdown or halts in manufacturing operations, restrictions on supply and transport, and infrastructure slowdown, which is expected to negatively impact the demand for plastics in the aforementioned applications in the region in the coming years.

Key Companies & Market Share Insights

The competitive rivalry among producers is high owing to the presence of several players in the market for plastic. The market is highly fragmented in nature with the larger share occupied by medium and small enterprises engaged in the manufacturing of plastic. The principal strategy employed by market players is increased focus on high margin products.

Companies are heavily investing in capacity expansion coupled with research and development of plastic to have a balanced product portfolio. This is supported by the fact that in March 2017, BASF SE announced to build a new polymer additives plant at its Caojing site in Shanghai, with an investment of USD 217 million. The strategy comes_ _a_s_ _a_ _p_a_r_t_ _o_f_ _B_A_S_F_'s_ _p_r_e_v_i_o_u_s_ _a_n_n_o_u_n_c_e_m_e_n_t_ _t_o_ _i_n_v_e_s_t_ _o_v_e_r_ _E_U_R_ _2_0_0_ _million (USD 213.2 million) to increase its production network for polymer additives.

In February 2018, SABIC also announced projects in the Netherlands and Asia aimed at expanding its global capacity for two of its high-performance engineering thermoplastic materials, Noryl and Ultem resins. The planned new production facility in Singapore is likely to go online in the first half of 2021. The organization has also proposed to recommission operations at its Netherlands-based Bergen Op Zoom PPE resin plant by the end of this year to produce polyphenylene ether (PPE), which is the base resin for its Noryl resins and other oligomers

MINI CASE 2

Brenda Kim threw her hands up in the air and said "they lost another one"! She quickly typed a message to Michael Makinda on her iphone: "Mike, lost stock again in Oshawa DC...customer upset and Barry screaming...heads up"! This was going to be a long day and it was only Monday...Barry Silverberg, was the Director of Sales and he was going to lose it if another customer order could not be filled. She knew he would be calling her directly, even though he should be speaking to Mike or even Carver. Brenda Kim was the Logistics Supervisor for the facility in Winnipeg, Manitoba. Her job was to oversee the distribution centre which included both inventory and dispatching shipments to clients. She reported directly to Michael Makinda, the Director of Supply Chain Management. Although each Distribution Centre was important, Winnipeg informally acted as a hub for all other centres. The Distribution Centre in Calgary was primarily for the oil and gas sector; therefore their product lines were standard for the most part. They dealt mostly in what was called replenishment parts and were provided manufactured products directly from their Lloydminster manufacturing plant. Any overflow of parts seemed to end up in Winnipeg. The Distribution Centre in Oshawa, Ontario supports the automotive and industrial market primarily and received product direct from their manufacturing plant in Sarnia, Ontario. Unlike the Calgary Distribution Centre, the Oshawa Distribution Centre dealt with all three product lines, including Customs, Replenishment and General Inventory. The Winnipeg Distribution Centre, dealt with all product lines and supported the out of country distribution centres in Mexico, Trinidad and Brazil. However, anytime there was a problem, things trickled back to head office and Brenda found herself in the middle of issues despite it stemming from the Winnipeg Distribution Centre or not. Brenda was new to the role. Having graduated with her SCMP, she was able to do a term position and was then hired on permanently by Michael Makinda in March of 2017. At the time, being quite new she was anxious to get involved to help wherever she could. Unfortunately, that ended up meaning she would assist others with any issues they had, which for her was usually inventory problem or upset clients. It was not uncommon for the other facilities to contact her by text to either complain or place orders. She often wondered why no one used the integrated platform they used which they all had access to? Brenda recalled her meeting with ODPG's latest whiz kid, Carver Parks. Maybe he could help make some changes that would create less chaos in the future. Transcript of Zoom Meeting with Carver Parks, Michael Makinda & Brenda Kim (April 2020):

Carver: Hi everyone, thanks for accepting this meeting. We are certainly living in a new reality now, aren't we? Michael: You can say that again! Have you driven outside lately; it's like a ghost town - Brenda: Hey guys, sorry I might have to leave and come back. Ronan is down, but when he gets up...let's just say he need "mom's attention"! Carver: No problem, I have to tell you Brenda, I miss those days! Enjoy while you can - when they get older the only attention you get is when you open your wallet! Michael: Ha ha, Ok Carver how can we help you? Carver: Thanks Everyone. Look you have probably heard about our poor performance in 2019 right? Michael: Yes, I was speaking to Barry about it, and he filled me in. I gave Brenda and update as well. Carver: Great, then why don't we get started? Basically, I just want to do an exploratory session and find out some of the macro issues from your perspective, ok? Brenda: Sounds good, where should we start? Carver: Well, why don't you give me a list of the some of the issues that impact your day to day to reach your objectives? Brenda: Ok, sure. I think for me, my biggest issue is the hectic nature that everyone is communicating with each other. I mean, if we didn't have our phones, I'm not sure how we would talk as everything seems to be on text messages and it's always urgent so it feels like we keep jumping from issue to issue. I mean if Barry texts me, I must drop everything we are doing because a customer is upset, right? Michael: Carver, just to give you some background here, we actually do have a system which integrates everything, but it doesn't seem to be used to its full extent. Carver: Thanks Mike. Ok, when you say integrates everything what do you mean? Michael: Well, unlike most of our systems, the inventory system ties all the DC's together including the out of country ones. Believe it or not, we could tap into Sao Paulo's inventory right now for Custom, Replenishment or General. Carver: Sure Mike, I did hear that. But is it accurate? Michael: It's accurate but not updated; I think that is the problem. You know right now, we have at least 12 - 15 days of backlog of getting inventory on the shelves, right? That seems to be consistent with all DC's so usually what happens is at the end of every month we pay OT to get the stock off the floor. So usually at the beginning of each month we are caught up, but then as the month goes on, we fall back again. Bren, is that accurate?

Brenda: Yep, but I think it's more than that as well. We don't know when we are supposed to get inventory or how much, it just "appears" so we never have time to react. I mean there is a schedule, but it does not seem to be correct, so only when Kristin comes down from planning and changes our white board do, we really know what to expect. Then there are the customer shipments. I can't tell you how many times we are ready to ship something out, because Barry is screaming, and we are stalled because the shipping information is missing or incorrect. Sales and planning never care about shipping information, it's like they think it will magically appear on the Job Pocket. International shipping is a nightmare, no one truly understands it. But if the customer gets a late shipment, everyone hit's the roof. The other issue is... Carver: Ok, thanks Brenda. Let's try to take these one at time. Michael what do you think of what Brenda is describing? Michael: I hear it Carver, every day from Bren. We do well at cross checking specs for the product, so our quality control is good there, but related to information it's the last thing anyone thinks about, especially related to Logistics. In fact, that is why we purchased the inventory platform to begin with, in hopes that we could have some improvement. We are so customer focused, which of course I understand, but the integrity of inventory is always compromised. Carver: Thanks team. Ok do you think the other DC's are similar to what you are experiencing? Brenda: Not really, Carver. You see Calgary is basically supporting the oil and gas sector and they deal primarily with the Lloydminster plant. Many times, we don't even get involved in their orders or even pay attention to those. To be honest, the most time we hear from Calgary is when there is a part issue in Lloydminster and purchasing needs something ASAP. Oshawa is similar with anything automotive, so they deal directly with Sarnia. However, outside of automotive, they are a mess. Sorry, not trying to criticize, just being honest. Michael: No worries, Bren, you need to be honest here. Everyone has the same goal, and you are the ground floor so we appreciate your insight. Carver: Mike, I thought Suhani had each plant report profit? How does the DC do this? Michael: Yeah, that is how it's supposed to happen. Each plant sells to another. In theory we all support each other and then the customer. For example, if we have a large custom order for an agriculture customer in Winnipeg, they place an order with the Barry's team. He puts it in the system and then planning decides what manufacturing plant will produce it and what DC will eventually get it or if goes direct to the client. Let's say it's produced in Sarnia, ok? They sell it to us and then in turn we sell it to the customer. Makes sense right, but with this model it means that the manufacturing plants always makes money because they internally sell to either the customer or to us directly. The DC's sometimes get to sell high margin product but we hold on to a crap load of inventory. There's no accountability with manufacturing Carver, if they over produce, they end up selling it to us so they always look good and we look bad.

Carver: Would Barry agree Mike? Michael: Barry's biggest issue is the customer. He's said that in today's world the loyalty is gone and it's all about price, delivery and value added. The pressure he has from offshore competitors is intense. You can get injection mold products cheaper and quicker than we can do here from either China or India? Tell me how that makes sense? Everyone holds inventory now, that is an expectation of a customer not value added so he constantly must throw that in as a freebie and the client doesn't pay. Barry feels we need to really redefine our value proposition to the customer if we want to grow the business. Carver: For sure, and I think Barry makes some good points. But when I speak to him, he tells me there are some issues related to just getting general information? Brenda: That's true Carver. Our system provides data, but we don't interpret it well. Can you let me share my screen so I can show you this? Carver: Sure Bren, what are you showing us? Brenda: This is a data dump basically pulling information from our 3 DCs in Canada. This only represents a fraction of inventory, but it's for a few product lines. I understand it, but if I give a report to Barry, do you think he would? Michael: Carver, to try and help this problem we created a few trend graphs. We sent them to Barry but have not heard back. Brenda: I think Barry is to upset with getting things out the door to worry about graphs, Mike. Michael: Sure, I understand that Bren, he's the face of the customer, right? Carver: It's strange when I speak to production, they don't seem to feel there is a lead-time issue, and do you think there is? Michael: Carver, the issue is we get dumped on. Stock is coming in and out all the time, that's why our WIP area is filled with inventory to be shelved. You know, WIP is supposed to be product ready to go out the door. However, because we get so much inventory in, we cram it into the WIP area and then the product going on the door sits all over the place. Usually, we can't ship it because we don't have the information. Carver: Ok, lots to think about here. Let me get back to you on next steps. Can you email me those reports I want to look at them? Thanks.

Video Links To Help:

https://www.cbc.ca/radio/thecurrent/the-current-for-oct-8-2020-1.5754971/industry-has-known-for-decades-that-most-plastic-just-can-t-be-recycled-says-investigative-journalist-1.5755397 https://www.youtube.com/watch?v=X6HDcubgxRk https://www.youtube.com/watch?v=y78UVWd5PHE

TO USE THE ABOVE TWO CASEES, LINKS AND VIDEOS TO ANSWER THE QUESTION BELOW:

• I WANT TO KNOW the problem (or problems - for example, is it climate change, plastic in the ocean, fossil fuels, etc.)
• I WANT TO KNOW How does ODPG contribute to it (through the manufacturing of plastic)
• I WANT TO KNOW What ODPG WILL do to mitigate it (or can they)
• I WANT TO KNOW How this issue (s) impacts our entire supply chain,
• I WANT TO KNOW what is Circular Economy, and are what is the company doing about it.
• I WANT TO KNOW IF this involves Operations, Finance, or Sales and Marketing departments - I WANT TO KNOW IF ODPG customers even care.
• I WANT TO KNOW your recommendation for moving forward (3 options based on impact and costs) In your answer, you need to research, so please provide any outside references you are using to put your report together.

THANK YOU