QUESTION 2 Hilltop Coffee & Such (HC), a purveyor of premium coffee with exquisite taste, is a privately owned small company that imports coffee beans and its related products from several suppliers abroad and markets them to both wholesale and retail customers, primarily in Malaysia. The company started its business in 1990. Beginning 2005 more effective business practices were put in place with effort spent attracting wholesale business instead of direct appeals to retail customers. The wholesale market constitutes about 85% of its business. HC had experienced excellent growth over the last fifteen years, coupled with massive changes in the organizational structure and operations of the firm. In the beginning, Tajul Sulaiman, HC owner made all the major decisions for the company when revenues were below RM500,000. Since revenues have now grown to almost RM10 million annually, Tajul found that decisions and operational procedures that worked well in the past were inadequate. HC's line of product offerings had risen sharply, the supply chain had become much more complicated and relationships with customers more difficult to manage. In addition, several high-quality competitors had entered the market in recent years. Although profitability was still good, HC could no longer afford to operate inefficiently. The specialty coffee market is now crowded with competitors, with all of them attempting to grab a portion of HC's market share. The supply chain process for HC begins with the sourcing of raw materials (primarily coffee beans and powder) from several South American and Asian countries, namely Brazil, Colombia, Honduras, India, Vietnam, and Indonesia. Nevertheless, the majority of the goods are imported from Grand Coffee (GC), located in Pereira, Colombia. This company processes coffee beans and blends according to proprietary specifications for HC. HC is a relatively small customer of GC; as such, HC only produces specialized blends in batches about twice a year. More frequent production runs are considered economically infeasible by HC, as each run requires GC to adjust the settings on the production equipment to the proper specifications. There are substantial time and cost associated with this setup process, effectively limiting the number of runs per year. At present, GC only ships to HC in container size lots; each container holds about 10,000 kilos of coffee beans and powders. Purchase orders are generated from the production facilities in Klang, Selangor. The chief of purchasing also functions as the controller of the company; although product purchases rarely vary in quality, there are times when a particular specialized ingredient for the coffee blend is unavailable. In these cases, substitute ingredients need to be identified; this will occasionally result in production delays. Further, any changes in the production formula need to be cleared with the head of Sales and Marketing. This division is based in Penang. Large orders (from the biggest customers) are made directly to headquarters in Klang. However, most of the orders are smaller and are made by members of sales representative organizations hired by HC. HC is too small to have its own nationwide sales force. Regional sales organizations are hired to "service" the accounts; the size of the accounts varies widely. Some are as small as RM1,000/year (annual sales). The sales representatives receive 10% of the amount sold; payment is made to the representatives upon receipt of funds by HC. The volume of sales orders may be described as moderately predictable. Like any consumer product, though, there is a substantial degree of uncertainty in the order patterns, particularly in the peak order months of July through October. Orders are sent by phone and via the firm's email. HC feels that some sales are "left on the table" since the sales representative organizations are of varying efficiency. Anecdotal evidence suggests that some retailers order products from competitors if the sales representatives do not make timely visits to the store. In effect, if shelf inventory disappears and no sales representative appears to take an order, the retailer will simply fill the shelf space with other items (usually from a competitor). In most cases, the retailer has This study source was downloaded by 100000828304532 from CourseHero.com on 06-29-2021 01:18:15 GMT -05:00 https://www.coursehero.com/file/85063203/maf671pdf/ This study resource was shared via CourseHero.com CONFIDENTIAL 5 AC/FEB 2021/MAF671 Hak Cipta Universiti Teknologi MARA CONFIDENTIAL limited loyalty to the HC brand. The extent of lost sales from lack of attention is unknown but believed to be substantial. A further complication to HC order flow and inventory management is the reluctance of most retailers to keep much inventory in house. This often results in calls from retailers, either directly or through the sales representatives, to send a shipment "yesterday". These orders are frequent and tend to be small. They are also irregular in their timing. (Source: Adapted from Doyle, Bell & Smith (2010)) Required:

a. A major risk factor in the supply chain of HC is its dependence on GC for the majority of its inventory. Explain three (3) reasons why HC's over-reliance on GC is risky. (10 marks)

b. Discuss the feasibility of two (2) alternatives in reducing the dependence of HC on its primary supplier. (10 marks)

c. Product distribution to date has either been "in house" or through the network of independent sales representatives. Propose three (3) new distribution approaches to HC and explain how they can resolve the issues arisen from the use of the current distribution channels. (15 marks)

d. HC's current strategy is selling only to "high end" retail outlets. The Marketing Manager has recently suggested the development of a lower-end product that may be placed in "mass market" outlets to increase sales. Evaluate this proposal from both marketing and financial perspectives. (15 marks)