Operations Management 11th Edition

Operations Management 11th Edition
Chapter 15 Supply Chain Management
Case
When MasterTag was founded in 1949, Ludwig Schmidt, set out to be a manufacturer of plastic fishing bobbers. Then, in 1950, Mr. Schmidt was approached by a local greenhouse owner and was asked to if he could produce a line of horticultural labels for plants. At the time, these labels were made of wood. Mr. Schmidt adapted his machines to produce these labels and has been manufacturing the plastic “tags” for plants ever since. Over the years, the labels have increased in quality and now feature full-color pictures on the plans along with name and planting and care instructions.
Many of MasterTag’s largest customers are seed companies that sell the seeds to commercial growers. The large seed companies typically place one or two large orders with MasterTag at the beginning of the growing season. The seed companies then sell their seeds and the labels to their customers who grow the plants and sell them to the end consumer. For various reasons, the seed companies do not like ordering tags, but do so because their customers demand labels with their seeds.
However, there are several problems with this ordering process. The main issue stems from the fact that the exact quantities of tags that will be needed is difficult to predict due to possible crop failures and the introduction of new items. To avoid a shortage of tags, seed companies order and ship a large quantity of tags to their customers. Tags are ordered early to allow for the time needed to incorporate the tags with the seeds. Seed companies usually end up each year with huge number of leftover tags. In fact, MasterTags’s largest customers often end up with millions of leftover tags.
When MasterTags’s management became aware of all the unused labels and unhappy customer, they decided they must come up with a better solution for achieving a match between supply and demand of the tags. One possible solution would be to make an initial, fairly large batch, which would be produce and shipped directly to the growers instead of the seed companies, as is now being done. Later, when the grower results became available, a second batch would be produce using information from growers on how many additional tags are needed. The second batch would then be made and shipped to the growers. (See figure for Before and After.)
Questions
1. Explain the key benefit of the revised approach, and the reason for the benefit.
2. MsterTag has not yet decided to implement this plan. List the pros and cons you think should be considered.