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Craft detailed responses without relying on bullet points. Use examples to illustrate key points, ensuring comprehensive coverage. There's no set word or page limit, enabling in-depth exploration. Refer to external sources to enhance credibility. Integrate real-world cases or studies for practical application. Aim for comprehensive answers that blend theoretical knowledge with practical insights.

Part 1

Read the following case study and answer all questions.

Case Background:

Company 1

Food companies such as Kellogg Co. had to flip from sending bulk volumes to schools and restaurants to feeding people working from home who suddenly had time for breakfast. Finding enough paperboard packaging for cereal boxes became a constraint.

With families staying home and limiting supermarket trips, the pandemic boosted sales of Kellogg’s cereals, noodles, and snacks. For the multinational, food consumed at home more than offset declines in on-the-go channels. While growth had moderated by September, Kellogg’s sales over the first nine months of 2020 increased 7% over the year-ago period, to $10.5 billion, excluding the effects of divestitures and currency rate fluctuations.

One highlight was the Asia Pacific, Middle East, and Africa (AMEA) region, where third-quarter net sales — excluding currency fluctuations — jumped by nearly 11% to $600 million and operating profit grew 6% to $59 million, over the year-ago quarter.

“There was one day in March when our third-party warehouse had to do the equivalent to a week’s worth of dispatching, and then we worked at that level for three weeks,” said James Anderson, CFO for Kellogg’s in Australia and New Zealand, who also heads up planning and end-to-end logistics. “We are used to big surges during promotions, but this was unprecedented.” The Sydney-based Anderson said the company quickly went through its several weeks’ “safety stock” in Australia, where Kellogg’s has manufactured for 92 years.

Anderson was part of a steering committee that decided to focus on the top stock-keeping units (SKUs) of their more than 100 items, including Nutri-Grain cereal bars, Coco Pops, Special K, and Corn Flakes, the original product of the Battle Creek, Michigan-based Kellogg’s. They quickly used up a lot of the grains stored in silos and warehouses. Kellogg’s factory and warehouse employees — and those of its suppliers and transportation partners — “worked incredible hours” to ramp up production and quickly load more trucks and containers. “When your retailers are demanding extra things, it’s your warehouse that needs to stretch the most,” he said.

Packaging became a bottleneck, as the region’s Korean supplier ran short due to shipping delays caused by the COVID-19 pandemic. The procurement team “scoured the world” for a new source of paperboard and found an alternative supplier next door in New Zealand. Lower transportation costs helped to make up for the higher cost of the New Zealand paperboard.

For Anderson, COVID-19 “highlights the importance of not having your supply chains spread out all over the world. It’s led us to look at the diversity of the supply chain and the benefits of having a supplier closer to home,” Anderson said. “Higher inventory was worth it to satisfy consumers who were glad to find a trusted brand on the shelf.”

Kellogg’s has emerged from the crisis having gained market share.

As companies move to automate processes, in part to withstand future health crises, Anderson credits the human part of the supply chain for its ability to stretch. “We were able to do amazing things because of how the people across our business and supply chain banded together to meet demand,” he said. “I know mechanization is coming and it’s a good thing, but our human spirit and resilience came out even more.”

Company 2:

Nike (NYSE: NKE)

The pandemic hit hard at Nike’s distribution, third-party manufacturing, and logistics operations. For 2020, net income before taxes fell by 40% over the prior year to $2.9 billion, according to its July annual report. After the pandemic forced Nike to shutter stores first in its brisk China market and then around the globe, inventory swelled 31% to $7.4 billion by fiscal year end on 31 May, compared to $5.6 billion at the end of fiscal 2019. Reduced shipments to wholesalers, labor shortages, and other “supply chain effects” curtailed Nike’s ability to calibrate supply and demand and increased costs of production and distribution.

In response, the Beaverton, Oregon, company accelerated plans to expand direct online sales, where profits are 10% higher than when it sells products wholesale, CFO Matthew Friend said on the first-quarter earnings call. Nike Brand Digital was its “fastest-growing channel, growing 79% on a currency-neutral basis with each of our geographies growing over 50%”, for the quarter ending 31 May, the company said in its annual report. The athletic wear maker cleared inventory by canceling factory orders, offering discounts, and shifting products destined for stores to fulfill online orders.

Already in 2020, Nike’s success at raising average selling prices “was more than offset” by higher US tariffs on imported goods, according to its annual report. The pandemic increased costs for canceled purchase orders and led to higher inventory obsolescence. Margins dropped as its supply chain costs were spread over “a lower volume of wholesale shipments”.

CEO John Donahoe called COVID-19 “a stress test” of the company’s direct connections to consumers, setting a goal of selling 50% online. In 2020, the company sold about 35% or $12.4 billion of its $35.6 billion in Nike-branded goods online, either directly or through partners.

While the company makes nearly all of its products in Asia, Donahoe said the company would try to speed delivery through “a more dynamic supply chain network that positions product closer to the consumer”, according to his July letter to shareholders.

During the pandemic, Nike depended on its use of radio-frequency identification (RFID) technology, which uses tiny radio parts embedded in tags to automatically identify and track all its footwear and most of its apparel. During the supply chain disruptions, Nike tracked “1 billion units at 99.9% readability”, Friend said during the September earnings call. “We were able to leverage the inventory visibility in order to be able to take advantage of the demand that we had across the marketplace and across our retail stores.”

Nike expects RFID to lower the cost of inventory holding and transportation, building on the data capabilities it bought through its 2019 acquisition of Celect, a predictive analytics and demand-sensing company. “That’s where the scale competitive advantage comes from in our supply chain because we will be able to forecast demand, get the right inventory in the right places to get it to consumers quickly both for ourselves and maybe even over time, that’s an added benefit for our strategic wholesale partners,” Donahoe said on the September earnings call.

1. How does Kellogg’s business model create and capture value? (10 points)

2. How does Lan Nike’s business model create and capture value? (10 points)

3. Compare how the two companies (Kellogg’s and Nike) were impacted by the pandemic and what actions did they perform to overcome the challenges. (30 points)

4. How important are sourcing decisions for each of these organizations? (10 points)

Part 2 (40 points)

In the contemporary global business environment, where supply chain dynamics play a pivotal role in organizational success, delve into the intricate challenges companies face in optimizing their distribution networks. Take, for instance, a globally operating organization with an extensive supply chain ecosystem, encompassing suppliers, manufacturers, and distributors across multiple regions. Explore the specific hurdles and complexities that arise in ensuring the smooth flow of products from production facilities to end consumers. Consider the impact of external factors such as geopolitical shifts, trade tensions, and economic uncertainties on supply chain resilience. Furthermore, examine the internal intricacies related to inventory management, transportation logistics, and the utilization of advanced technologies like artificial intelligence and data analytics in enhancing distribution efficiency. Evaluate the strategies deployed by organizations to mitigate these challenges, emphasizing the role of innovation, collaboration, and agility in achieving a responsive and adaptable supply chain distribution system.