Customization, Demand Variability & Supply Chain Design - Winter 2024
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Feb 20, 2024
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Customization/Demand Variability & Supply Chain Design
You are the purchasing manager for Primo Café Inc. Primo Café is a small-sized manufacturer of stylish
coffee makers. The company has three distinct coffee makers that it produces.
The Bean Boiler
The Family Man
The Caffissimo
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The Bean Boiler is Primo Café’s most basic model. The main materials
used in manufacturing the Bean Boiler are aluminum and plastic. There
are lots of suppliers for these materials. At present, Primo Café’s total
cost for producing a Bean Boiler is $13 and the product is competitively
priced at $15 per unit. There are lots of other coffee makers that are
very similar to the Bean Boiler on the market. Still, sales of the Bean
Boiler are very stable. The company reliably sells 1,500-1,510 units of
this product per month.
The Family Man is Primo Café’s mid-market offering. Primo Café
manufactures most of the Family Man in-house, but buys the glass pot
and the electronics that control the on/off function and the timer. At
present, final assembly of the in-house manufactured parts and the
purchased sub-components occurs at Primo Café’s facility in Grand
Rapids. Total cost for producing a Family Man is currently $32 and each
unit is sold for $34.99. The Family Man’s sleek, artistic design and range
of unique colors helps to distinguish it from a wide selection of similar
products offered by competitors. Prices for direct competitors range
from $25 to $45. Sales of the Family Man range from 1,000-1,100 units
per month.
The Caffissimo is Primo Café’s high-end offering. Primo Café produces
the external casing for the Caffissimo in-house, but buys all of the
important sub-components from external suppliers. The most
important sub-components for the Caffissimo are the gauges that
regulate the temperature and pressure of the water as it is forced
through the coffee grounds. The proper working of these gauges ensure
that the Caffissimo produces a perfect cup of coffee at brewing. The
Caffissimo’s design is a closely held company secret. The machine has
won industry awards both in terms of its coffee making process and its
external looks. Currently, the Caffissimo costs $375 to produce and sells
for $600. Because of the relatively high price and unique design,
demand for the Caffissimo is difficult to predict. Over the past year,
demand has ranged from 400-800 units per month.
Customization/Demand Variability & Supply Chain Design
Primo Café uses the same supply chain processes for all three of its products.
Each month, the company produces 1,505 Bean Boiler units, 1,050 Family Man units, and 600
Caffissimo units.
The same number of Bean Boiler, Family Man, and Caffissimo units are sent to the same
retailers each month.
The goal of this supply chain design is to minimize costs by standardizing the process for all
three products, so that the exact same number of units are produced and shipped each month.
As the purchasing manager for Primo Café, you have noticed some problems with this supply chain
approach. For instance, there have been stock outs of the Caffissimo at some retail locations, while at
other locations Caffissimo units have been sent back because the retailer still had inventory from the
previous month. You think there’s a better way.
You work for Marco, the Chief Operations Officer. Marco is a big proponent of the single supply chain
structure because he is convinced that standardizing the process is the most efficient way to run his
operations. He also thinks that any issues with the retailers is the Marketing department’s problem.
You have decided to make some recommendations to Marco about how Primo Café can improve its
supply chain processes. Using the class discussion of customization/demand variability and supply
chain design, discuss any changes you would recommend – and why. Be sure to discuss all three
product lines and to support your recommendations with details from the case.
In the context of Primo Café's supply chain management, there are opportunities for improvement to
address issues such as stockouts of the Caffissimo and excess inventory. Below, I analyzed each product
line based on the principles of customization/demand variability and supply chain design discussed in
the class:
1. Bean Boiler (low customization/low demand variability):
The Bean Boiler has stable and predictable demand patterns, and its production process involves
commonly available materials with many suppliers. Given its low customization and stable demand, it
aligns with the principles of low customization/low demand variability.
- Recommendations: - Continue with the standardized supply chain processes for Bean Boiler, as it is cost-effective and meets
the basic needs of customers without significant variability.
- Regularly review and negotiate with suppliers for aluminum and plastic to ensure cost-effectiveness.
2. Family Man (low to moderate customization/moderate demand variability):
The Family Man has some level of customization due to unique design features and a range of colors.
The demand for Family Man varies moderately. The current supply chain structure, with final assembly
in-house and purchased sub-components, may contribute to the $32 total cost.
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Customization/Demand Variability & Supply Chain Design
- Recommendations:
- Evaluate the in-house manufacturing process to identify areas for cost reduction without compromising quality.
- Consider strategic partnerships with suppliers to negotiate better prices for glass pot and electronics components.
- Implement a more flexible production schedule based on demand forecasts to prevent excess inventory. 3. Caffissimo (high customization/high demand variability):
The Caffissimo has high customization with closely held design secrets, and demand is difficult to predict
due to its high price and unique design. The current single supply chain structure may not be suitable for
a product with such high variability.
- Recommendations:
- Introduce a more flexible supply chain structure that allows for dynamic production planning based on real-time demand data.
- Collaborate closely with external suppliers of sub-components to streamline the procurement process and reduce lead times.
- Utilize advanced analytics and machine learning to improve demand forecasting for the Caffissimo.
- Establish a dedicated production line or cell for Caffissimo to address its unique design and high customization requirements.
- Implement a feedback loop between the Marketing department and the supply chain team to incorporate market insights into production planning.
Relating back to the class discussion:
The class discussion emphasizes being customer-centered and understanding the total cost to serve and
profit. For products like Caffissimo with high customization and demand variability, a more customer-
centric and flexible supply chain approach is crucial to meet customer needs efficiently.
Segmenting customers based on their willingness to pay is essential. The Caffissimo, being a high-end
offering, requires a supply chain strategy that aligns with the expectations and preferences of this
specific customer segment.
In conclusion, while standardization is beneficial for products with low customization and demand
variability, a more tailored and flexible approach is needed for products like Caffissimo to optimize the
supply chain, improve customer satisfaction, and enhance overall profitability.
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