Question

Chelan Trading Company Case Study       

Chelan Trading, based in Hong Kong, buys electric connectors from about 50 factories in the Guangdong Province of South China. They sell them to distributors in Asia, Europe, and the US. Because their products are used in construction, demand is lumpy (erratic, and therefore difficult to accurately predict. They are 100% build-to-order, meaning that they don’t purchase from their suppliers until their distributors place orders to them. They currently stock no inventory at all, and have no serious assets beyond computer systems and their client/supplier database..

Their products are generally low-cost with low margin, and their lifecycle is fairly long (2+ years).

Their suppliers are all delivering products to Chelan on an FOB Hong Kong basis, and their average shipment from an individual supplier is 3-5 cubic meters. Sales from Chelan to their distributors are always CFR. Their annual volumes are roughly:

• Asia (10 countries with demand spread across them) 4-5 containers /week
• Europe (mainly UK, Netherlands, Germany, France) 10-15 containers/week
• US (demand mirrors US population distribution, more on East Coast) 20-25 containers/week

In order to save on freight cost, they have historically tried to aggregate demand from multiple customers, and use a forwarder to build consolidations from Hong Kong to cities that are close to their distributors. Their singular focus on freight cost has resulted in two down-sides for their customers:

1. Order-fill-lead-times are not only long, but erratic (they’re very focused on optimizing container space because of the low margin on the product).
2. Distributors don’t always receive the product in the same city (consolidation destinations depend on the specifics of the orders at any specific time). In other words, one week they may send a container to Miami and ask their Atlanta-based distributor to pick up his goods there, then the next week they ship to Charlotte, etc.

While their demand in Asia is up this year, they’ve noticed that their US and European customers are buying less from them, for the reasons noted above.

They need help deciding what to do to protect and grow their US/European business, and are asking you to lay out multiple options, together with the pros and cons of each.

You need to list what information you’ll need from them to do an objective comparison of these options, so they can make an informed business decision on which way to move forward. They have assured you that if you come up with the right possible solution for them, the consulting contract is yours.

ACTION:

You are now a consulting company! Write up some ideas that would help Chelan address these difficult issues. Your report should be creative and at minimum 2 pages in length. You are representing your company, so double check sentence structure and grammar.

TIPS:

• Use your own knowledge of geography, along with what you are learning in this course. Feel free to ask me questions.
• Link your suggestions to benefits, and associate the benefits to the problems outlined above.
• Use assumptions when you don’t know a fact- but state your assumptions. The sky is the limit as to your ideas, but remember that Chelan is a small trading company....

Answer 1

Answer:

Following are the key ideas for the difficult issues/problems for the Chelan Trading Company as below

• Use Demand Forecasting: The Chelan trading company needs to use and follow the process of demand forecasting. Demand forecasting is the right approach that will help the Chelan trading company to manage their demand from their global customers and can made the shipments as per the forecasted demand easily. The demand forecasting process will help to structure the shipment process for the Chelan Company and they can make best use of their resources for meeting the customer requirements and can generate larger revenue for the business. Demand forecasting will help them to see the erratic demand in advance and can take the necessary measures to manage the demand erratic nature adequately.   
• Lot/Quantity Based Pricing: It is difficult for the Chelan trading company to manage the shipment against any customer demand due to high freight content of the shipment. So the Chelan company can come out with the solution of lot based pricing or quantity based pricing. The lot/quantity based pricing will capture the expenses for the Chelan trading company and they can offer the pricing accordingly to their customers. This will help the customers to manage their demand with little extra costs. If customers are really in need of the demand, they can pay larger and buy the material and Chelan trading can organize the suitable shipment. Thus both will be in win-win situation.
• Smoothen Supply Lead Time: The smoothening of the supply chain lead time is very essential for the Chelan trading, because unless then have smoothen lead time process, customers will not get confidence and will not be able to make the proper business with Chelan trading. So Chelan trading to come out with smoothen lead time which may have high pricing for shorter lead time and shorter quantity and may have increased lead time for larger lot/quantity.
• Process for urgent shipment/Customer demand: Chelan trading need to defined the urgent shipment process for their customers, so that the urgent customer demand can be managed with this process. The urgent shipment may use the air mode or other expensive faster mode, but the material can be shipped to customers and they can manage their demand.
• Use of suitable couriers / transporters: Chelan trading need to make business agreements with other transporters or courier service providers so that they an help in managing the small shipments with the best possible minimum rates, so that Chelan trading has options to manage the shipments at suitable freights.