Your task is to critically evaluate the situation presented in the case study and formulate recommendations. You are cast as a consultant, brought in to take a fresh look at the organisation and provide improvement plans. MA Logistics and Supply Chain Management Module 771654: Logistics Systems and Supply Chain Principles Assignment 1: Case Study – Melco The business in this case study is fictional and any resemblance to a real business is coincidental and unintentional. However, you are encouraged to examine academic literature and other sources in order to learn more about the industry as a whole. The Client: Melco is the global leader in outdoor power products for forestry and lawn and garden maintenance, as well as cutting equipment and diamond tools for the construction and stone industries. The company sells products to consumers and professionals in more than 100 countries. The largest markets are in North America (54 %) and Europe (40 %), only smaller quantizes are sold in the rest of the world, with the Asian market becoming increasingly important due to the development in China. In 2007, Melco had sales of SEK 33 billion and approximately 16,000 employees. Business Areas: The case company’s operation is currently organized in two business areas: (1) Consumer products and (2) Professional products. The consumer products share of total sales (67 % of total sales) has increased in recent years; however, the case company makes more profit in the professional sector (33 % of total sales). Consumer products are sold mainly through large retail chains. This market is highly consolidated in North America and the UK, while in the rest of Europe the market consolidation is still ongoing. This implies that the Group’s retail customers, such as large Do it Yourself (DIY) chains, are becoming larger and fewer in number, which gives them greater bargaining power and several of them source products that they market under their own brands. This situation can provide Melco Group with an opportunity to generate higher growth by displaying the Group’s products in a large number of retail outlets in a wider geographical market. However, it also entails risks. Most obviously, the failure to build or maintain strong supply relationships with key DIY retailers can have significant negative effects on volumes and profitability. Conversely, successfully maintaining such customer relationships can lead to a greater degree of dependence on individual customers, with higher levels of trade receivables and credit risks related to these customers. Moreover, any decline in the relative market success of a retailer with whom we have a strong relationship can have a disproportionately negative effect on the Group. Professional products are sold mainly through local independent dealers or in some cases directly to end-customers, which means that these customers purchase much smaller volumes and generally are not individually significant for the Group. Unit costs for sales to dealers are higher than, for example, retail chains but the level of risk related to receivables and credit is lower. Its manufacturing and supply chain risks: Melco Group’s production consists mainly of assembly of purchased components, and is subject to risks from fluctuations in demand resulting from economical, seasonal and weather variations, as well as the availability and applicable lead times of key components. Handheld products such as chainsaws and clearing saws, for which the Group also manufactures engines, as well as watering products, feature a higher proportion of specialized components that are produced in-house. We maintain a relatively large manufacturing base with corresponding fixed costs, meaning that any material decline in overall sales volumes can have a significant negative impact on the profitability and overall cost-efficiency. Moreover, having a broad supply chain potentially increases the risk that products may contain components that are not produced sustainably. The Group and its suppliers must share the same high standards for the environment, labor and human rights performance as stated in the Supplier Code of Conduct. Any significant disruption could negatively impact the Group’s sales and earnings. The risk is exacerbated in those cases where Melco Group relies on a few (or even single) suppliers to deliver key materials or components. The Group’s purchasing organization works closely with suppliers in order to manage deliveries, and monitors the suppliers’ financial stability, qualityassurance systems and flexibility of production. Electronic components, including batteries and related parts, are becoming increasingly common and important for the Group’s products and services. At the same time, worldwide demand for such components, especially battery cells are dramatically increasing. As for all direct material supply, availability is dependent on suppliers and if they have supply interruptions or lack of capacity, it may have an adverse effect on the Group’s production and deliveries. The case company’s manufacturing strategy is to manufacture as close as possible to major final markets. However, opportunities to manufacture components in low-cost countries in Asia and transport these to assembly plants near final markets are being considered. The major issues of this approach are the extensive transportation lead-times (5-6 weeks by sea, air is not a long-term option due to costs incurred) and the risk of a decrease in product quality. Additionally, the current market in Asia is small (1-3%), making the location of factories there a less interesting option. Our operations involve the movement of products, components and raw materials across national boundaries, meaning that such goods may be subject to import and export duties or similar tariffs. Normally, the costs of such tariffs are taken into account in our product pricing. However, any abrupt changes to (or unclarity regarding) such tariffs exposes us to a number of risks. The risk for disruptive changes in the tariff landscape have been exacerbated by recent geopolitical factors, such as the decision by the United Kingdom to exit the European Union (“Brexit”), as well as the recent tariffs imposed by the United States against China and other countries, and associated risks of so-called “trade wars.” Melco Group’s ambition is to achieve market leadership by 2025 in more than just market share. Market leadership is defined as being the number one player or the number two player competing for the number one position. A market leader also drives industry evolution in terms of innovation, customer focus, sustainability and operational excellence. It is also able to capture the financial opportunities inherent in the market share position and innovation leadership. For this reason, the Group is constantly developing the supply chain into a more seamless end-to-end model utilizing emerging technologies that are defining the factory of the future. Another important aspect of the future supply chain is ensuring traceability to manage certain supply chain risks, for example, sourcing and using restricted materials that are found in products and components such as batteries. To further build on Melco’s heritage of innovation, the Group will move from a traditional supplier approach to a more networkoriented collaborative methodology based on long-term strategic partnerships with key suppliers. This will allow it to develop the ability to quickly identify and operationalize opportunities brought by suppliers’ innovation capabilities.