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Now the wholesaler is worried that this new retailer-buyer is not going to come back again, instead spreading bad mouth on his mangoes. Also he realised that he lost not only Rs 500 as compensation but also lost sales on the first day for his regular retailer-buyers. Since all of his baskets were sold to the one retailer alone, three of his buyers were upset and he had to apologize to all to keep them in the business.
Now the retailer realized that over ripened mangoes made the place untidy and storage cost in the name of cleaning and uncomfortable is real waste.
Now the sellers union leader realised that these types of conflicts should not come back among these small business people. In the evening, he met in Tea shop and advised the retailer to go for smaller batches to buy and sell. Retailer replied “the small batch purchase is really expensive since more frequent orders require very huge transportation costs and impossible price reduction” something he overheard from a customer cum statistics professor.
Betaal asked Vikram ``Being a wise king, how do you break the conflict of smaller and bigger batches? Will you suggest the economic ordering quantity?”. “Thank god! In our era, this stupidious formula was not invented at all, '' Vikram replied. “Right idea is the validating of many assumptions they have.” Betaal was convinced by his answer and continued to tell the story…
Union leader has drawn an evaporating cloud stating the objective, need and want of change in the business model of the retailer. Both agreed that the objective of that small business is to increase the profit and so, both buying-price discounting and wastage reduction are the necessary conditions for that. For larger volume purchases only price discounts are possible, but for smaller batches lower wastages possible. Conflict has arrived.
The wholesaler entered the same Tea shop during the discussion and bothered them. The retailer hesitantly wished him and moaned “Shy! Conflict came!”. Union leader asked the wholesaler to sit nearby in the bench and ordered one more Tea for him.
Leader restarted discussion “Only smaller batches will reduce the wastage.- is a questionable statement. If you properly store large inventory, no overrippening may occur. Why don't you buy a refrigerator to store the fruits so that you may reduce the wastage?”
“Sir, I can not afford the investment first of all. Though I can buy it on loan, why should I pay installments and EB bills?”
“Yes. It may cost your profitability. Further return on investment is very important. Ok! Let us check other assumptions. Higher the quantity purchase is must for price discounts - This is also a questionable statement”
“No doubt about it. For each purchase, need to buy larger volume”
“Sorry to interrupt,” the wholesaler said. “Need to buy a larger volume per period. Not each purchase”
“Explain a little more,” the union leader asked.
“For example, if he (retailer) would have ordered me for four basket and receive each basket a day, then I would have ready to give him the same price discount”
The retailer replied “Ah! you want me to pay 4000 Rs and trust you to give me the baskets in four days. You will fly off!”
“I am not talking to you” the wholesaler turned away from him and said to the leader “Sir, If he pays just 2000 Rs for both today and tomorrow baskets, it is enough. Even if I cheat, 1000 Rs alone is a risky amount. But tell me sir. How long have I been in this market?”
“Don’t mind. I know you are trustworthy. Trust is first investment in a supplier relations”
“Sorry if I hurt you” the retailer said to him. “But frequent supply will not be more expensive to me due to four times of transportations?”
After a long look showing the dilemma of whether to forgive or not, the wholesaler said, “It is OK. Do you remember that day you came in a scooter which was enough to take one basket to your premise. But you paid 100 Rs for a three wheeler because of bulk purchase. But if you use your vehicle it is just a fuel cost. Do you know one thing? My Matador is passing through your premise many times in a day. If you are my regular buyer, I can deliver you the mangoes at any time free of cost”
“So Kind of you! I had the opinion that people are born bad.”
“My selfishness is always here. I don't want to lose a talented retail seller like you”
Betaal asked Vikram ``What is the missing point in the story?”. Vikram replied “The ordering quantity is not yet decided. I lean towards single piece flow of mangoes from supplier to retailer”. Betaal said “Your first statement is right. Why should you apply single piece flow in the supply chain?”. Vikarm said “Because inventory is an evil liability and not an asset”. Betaal laughed at him “Inventory is neither an asset nor a liability. It is a necessity to protect the need of the constraint which is the end customer sale”. Betaal flew away again to the moringa tree.
Incredible Vikram climbed onto the tree and pulled the Betaal with great struggle. He started walking along with it again. Betaal continued the story...
Union leader asked both “how do you decide the ordering quantity? A basket a day. I noticed that the retailer was able to sell the full basket per day. It means he can sell more too when he is able to give fresh mangoes”.
Retailer said “within a day if I receive the supply frequently it may affect my sales time so if I get the mangoes the previous night then I will be ready for sales in the morning without delay”.
“So if you focus on sales, you make more than a basket a day. Then can you order 1.5 or 2 baskets for each day?” The Union leader said. “If something is left over then carry over to the next day, then reduce the order quantity. I mean maintain the inventory level constant”
“Hello, I don't serve dinner! All went out. What are you debating here?” Tea shop owner shouted Jokingly. Further he came and listened to the discussion.
Without bothering him, the retailer talked to the leader “Without any policy you mean just to follow the inventory level and fill it. Of course I know multiple pricing methods for the same mangoes based on quality classification based on under ripen, fine and over ripen. Stil I don’t get a clue how to be responsive towards excess demand or anything else.”
Tea shop owner interrupted “Whenever you have pre booking orders or well advanced known demand on a particular day you may procure extra. Other days, I tell you my method of handling my candy purchase. I have colored my candy bottles like Red, Yellow and Green from the bottom to top in the backside. If the stock level remains in the yellow zone most of the time, then I follow your method as long as.”
“I see,” the retailer wondered. “If the stock level is in the red zone most of the time?”
“Then, I will change the bottle to a bigger one.”
“That also will have color coding? But it will also be in the red zone. Isn't it”
“Yes. You See. Frequent red zone means more demand. Isn't it. So you need more inventory. I mean a big bottle. Since I follow your idea of filling the bottle, then It may reach green or yellow levels soon. It won't end up in danger at stock level. I mean red. Out of stock is dangerous to me.”
“Got the point. Suppose your inventory level is in the Green zone most of the time, then you change the candy to a small bottle. Then it becomes overflowing and you tend to stop purchasing or little purchasing. You identify it as an immovable item. Interesting.”
“Mmmm!” the wholesaler sounds.
“What happened?” The retailer asked.
“This is a very simple and great idea for maintaining the inventory level at low and avoiding the stock out. Why didn't I follow my purchases from the farmers?” the wholesaler said. “If I have a long term contract both myself and the farmers will get steady price and flow of goods”
Betaal asked Vikram ``What are the learning from the story?”. Vikram replied “One, People are born good; Second, Win-win situation is always possible; There is an inherent harmony; Third, Dynamic buffer management solution for the supply chain practice is a powerful solution and lastly need to learn more on TOC concepts from the below books.
Goldratt, E. M, Eshkoli, I and Brownlee, J. Isn't It Obvious? North River Press, (2009)
Goldratt, E. M.,The Choice, North River Press (2008)
Sekkizhar, J., Throughput accounting: Numerical solutions from theory of constraints, Amazon KDP publishing, (2020). sekkizhar@psgim.ac.in
Goldratt, E. M., Theory of constraints - HandBook, McGraw-Hill Education, (2010).
Dettmer, H. W., The logical thinking process. A Systems Approach to Complex Problem Solving. American Society for Quality, (2007).
Lisa Lang, Achieving a Viable Vision, The Theory of Constraints Strategic Approach to Rapid Sustainable Growth, Throughput Publishing (2006).
Category: Education
Location: Tamil Nadu, Coimbatore
Type: Knowledge Sharing
Name: sekkizhar j
City: Coimbatore
Bio: Statistician consultant in business turnaround educationist Associate Professor
Web: https://www.psgim.ac.in
Email: jsekkizhar@rediffmail.com
Phone: +919842246452