IB Business Management
Unit 5.6 Production Planning (HL)
Case Study: Howie's Home Bargains (HHB) Supply Chain Crisis
In the busy streets of London, Howie’s Home Bargains (HHB) found itself in the eye of the storm as the Covid-19 pandemic approached. Their supply chain management was about to be put to the ultimate test!
As the the pandemic loomed, panic buying gripped the UK. HHB, a British supermarket chain known for its affordable stuff, faced a surge in demand for essential items such as toilet tissue, water, cleaning products, and canned goods. The unprecedented spike in sales caught them off guard.
The first sign of trouble was the stockout crisis that hit HHB. Shelves were suddenly empty, leaving customers frustrated. The outcomes were severe—customer loyalty started to collapse.
The concept of ‘lead times’ suddenly became critical. HHB, like many others, underestimated the time it would take to restock shelves amidst disrupted supply chains. HHB found themselves unable to meet the growing demand.
In an attempt to manage the chaos, HHB explored the use of stock control charts to analyze their inventory levels. The charts, showed that inventory levels had fallen to unprecedented lows, far below the reorder level. The term ‘buffer stocks’ became an afterthought as HHB realized they had failed to maintain a safety net to absorb sudden surges in demand! Whilst they had used an automated system, it had failed to recognise the panic buying and react quickly enough!
Desperation led to the emergence of stockpiling among consumers which made the problems worse! The aftermath of this supply chain crisis is a lesson for businesses everywhere especially in times of crisis and for fast moving consumer goods (FMCG’s).
As the dust settles, HHB faces the task of rebuilding trust and restocking shelves.
KEY TERMS FROM THE HHB CASE STUDY
QUESTIONS FROM THE HHB CASE STUDY
- State two costs to HHB of the stock out [2]
- Outline the purpose of a stock control chart [2]
- Define the term, lead time [2]
- Distinguish between a firms reorder quantity and its reorder level [2]
- Explain why the usage rate of fast-moving consumer goods (FMCG’s) is likely to be higher than appliances or furniture! [4]
- Explain two reasons why HHB faced a stock out [4]
- Analyse reasons why HHB might have held minimum stocks [5]
Unit 5.6 SUGGESTED ANSWERS TO (HHB CASR STUDY) PRODUCTION PLANNING HL
Unit 5.6 Production Planning Suggested answers
1.) State two costs to HHB of the stock out [2]
a. Lost Sales Revenue: HHB would have missed out on potential sales during the stockout period, leading to a direct financial loss.
b. Customer Loyalty Damage: The stockout might have frustrated customers, leading to a decline in customer loyalty and potential long-term damage to the brand.
2.) Outline the purpose of a stock control chart [2]
a. Monitoring Inventory Levels: Stock control charts help in visually monitoring and tracking inventory levels over time.
b. Identifying Trends and Patterns: These charts assist in identifying patterns, allowing businesses to make informed decisions about when to reorder and how much to reorder.
3.) Define the term, lead time [2]
Lead time refers to the time duration between placing an order for inventory and receiving it, encompassing the processing, manufacturing, and delivery time.
4.) Distinguish between a firm’s reorder quantity and its reorder level [2]
a. Reorder Quantity: The amount of inventory a firm orders each time it places an order.
b. Reorder Level: The minimum quantity of inventory at which a new order should be placed to avoid stockouts.
5.) Explain why the usage rate of fast-moving consumer goods (FMCGs) is likely to be higher than that of appliances or furniture [4]
a. Frequency of Purchase: FMCGs are consumables with a higher frequency of purchase, leading to a more rapid usage rate.
b. Perishability and Shelf Life: FMCGs often have a shorter shelf life, necessitating quicker consumption compared to durable goods like appliances or furniture.
6.) Explain two reasons why HHB faced a stockout [4]
a. Underestimation of Demand: HHB did not anticipate the surge in demand during the pandemic, leading to inadequate stock levels.
b. Disrupted Supply Chains: The pandemic disrupted supply chains, causing delays in restocking and contributing to the stockout.
7.) Explain why HHB might have held minimum stocks [4]
a. Cost Efficiency: Holding minimum stocks may have been a strategy to reduce storage costs and enhance overall cost efficiency.
b. Lean Inventory Management: HHB might have adopted lean inventory practices to minimize excess inventory and associated carrying costs.