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CASE: SUPPLY CHAIN MANAGEMENT

Pierre’s Kitchen

Pierre’s Kitchen manufactures utensils and gadgets for thecooking enthusiast. Pierre’s products are sold throughout NorthAmerica, predominantly through kitchen and home specialty stores.Like most producers and suppliers of consumer specialty products,Pierre’s must cope with large seasonal variation in demand. This iseasily seen to relate to seasonal variation at the retailstores,

One of Pierre’s top-selling product families is its line of 78different gourmet kitchen knives. The knives have received praisefor their comfort in the hand and their ability to hold an edge.Pierre’s credits the popularity of its knives to the steel used intheir construction. Pierre’s has always utilized the finest Swedishsteel for its blades. The steel used in those knives is the sourcefor nearly all of purchasing manager Robin Benton’saggravation.

Robin orders steel for knives at the beginning of each month. Bythe time it is transported to port, shipped to the US, and truckedto the Pierre’s Kitchen plant, it takes just over five weeks to getit. Robin determines order quantities by projecting retail demandfor each knife model over the next month, translating thoseforecasts into steel requirements, and then summing therequirements across the 78 knife models. That forecast for eachknife model is based on the sales that occurred the previous month.Pierre’s supplier of steel recently threatened to increase itsprices during the next contract period to cover increasing expensesit claims are the result of the wide fluctuations in orderquantities from Pierre’s.

Robin has examined her forecasts and orders for knife steel andadmits that the orders fluctuate dramatically from month to month.This results from fluctuations in individual store demand, which inturn results from promotions and sales at the store level. Whenconfronted with this information, sales manager Jaylen Cooperresponded, “It’s true that sales at individual stores fluctuate,but when I look at month-to-month sales across an entire chain ofretail stores, the demand only fluctuates about 10 percent. Theonly exception to this is the inventory build-up at Christmastime.” Robin’s examination of the actual sales data confirmedJaylen’s report.

1. Explain all possible causes of the demand fluctuation at thesupplier.

2. For each possible cause, identify a reduction strategy thatis within Robin’s control.

3. Is this bullwhip effect? Explain.

4. What types of communications enhancements would help reducethe problem?