LMGT6311 - Logistics and Transportation Management Assignment - The IIE

Assignment Task

Article

1. Building communities today, for tomorrow's future

South Africa is the 3rd most Bio-diverse country in the world, with many of its biological resources existing within rural landscapes of the country. These biological resources have been used for many decades, within traditional knowledge systems to build and strengthen the body, nourish and rejuvenate the skin and heal ailments. Most of the knowledge of these indigenous resources lies with the elderly members of rural communities. Setšong Tea Crafters aims to provide a voice to these traditional knowledge holders and preserve this knowledge for future generations.

The unique indigenous tea plants identified by Setšong Tea Crafters, traditionally known as Tepane Tea and Diya Tea amongst others, have proved to stand a chance at competing with existing global tea varieties with them offering unique and enjoyable taste profiles and superior health benefits. The tea varieties identified have been consumed for over five generations by the elderly members of the Bapedi tribe in Sekhukhune which results in a great deal of history and heritage being associated with this tea range.

• Most Progressive SMME by Johannesburg Chamber of Commerce
• Global Business Accelerator
• Bio-Entrepreneur of the year by AfricBio

2: The trends driving global tea production

Global tea production amounts to more than US$17 billion annually (about R275 billion), while the world tea trade is valued at about US$9,5 billion (R161 billion). Smallholders are responsible for 60% of world production. Tea provides productive jobs in rural areas, which enables households to meet their food security needs and improve their nutritional status.

Global per capita tea consumption has increased by 2,5% over the past decade, with marked expansion in tea-producing countries. Developing economies in East Asia, Africa, Latin America and the Caribbean have been driving the growth in demand.

The need for innovation is evident, as consumers increasingly demand organic ingredients, and diversified blends and flavours. There is also growing interest in higher-quality speciality teas, with green teas and fruit teas gaining popularity, especially in Europe, owing to real or perceived health benefits.

In 2021, international tea prices dropped to US$2,44/kg (R33,59/kg), as pandemic-related disruptions to logistics affected trade, and Kenya, given its production surplus, was selling its tea at highly competitive prices. In Q2 of 2021, prices made a recovery, reaching US$2,85/kg (R41,75/kg) in April, the highest level since May 2018. This was due to major spikes in the Colombo auction in Sri Lanka, on the back of tighter supplies from that country.

World tea production in 2021 increased to an estimated 6,5 million tons, from 6,3 million tons in 2020, as production of black tea recovered from the 2020 shortfalls in some of the major producing countries, such as India and Sri Lanka. China remains the largest producer, accounting for 47% of global output, reaching 3,1 million tons in 2021, compared with 2,9 million tons in 2020. Output in the second-largest producer, India, recovered in 2021 to 1,33 million tons compared with 1,26 million tons in 2020. Exports recovered slightly from the COVID-19-related downturn in 2020 to an estimated 1,8 million tons in 2021, due to higher export volumes from Kenya and China, and resumed shipments from Sri Lanka.

Global consumption has increased annually by 3,5% over the past decade and is estimated to have amounted to around 6,4 million tons in 2021, underpinned by robust demand in major producing countries (China and India), as well as emerging economies. Global per capita tea consumption has increased by 2,5% annually over the past decade. While declines have been registered in the traditional importing markets of Europe, North America and Russia. However, per capita, tea consumption has increased in producing countries, although marginally in most cases.

Medium-term projections are based on the results of the FAO’s partial equilibrium trade model covering the major tea import and export countries. World black tea consumption has increased by 3,5% over the past decade, reflecting strong growth in producing countries that has more than offset a subdued import demand in traditional tea-importing markets. The pandemic’s effect on the tea market is estimated to be moderate. The market will continue to see robust demand in developing and emerging countries, creating new rural income opportunities and contributing to food security. World tea exports have increased annually by 0,5% over the past decade.

Economic sustainability for smallholder tea producers can only be guaranteed if the returns from tea-growing activities can cover at least production costs and basic household expenditures. Innovation and product diversification is key for future market expansion and for boosting tea consumption.

Questions

1. Give examples of how the following trends would affect a business like Setšong Tea Crafters:

• Covid 19 pandemic
• Climate change and resource scarcity

2. Tea Crafters is considering a 4PL strategy. Contrast between the industry solution model and the supply chain partners model and choose the appropriate model for the business to adopt. Justify your choice by discussing at least 2 key points.

3. Explain how Setšong Tea Crafters can use exporting as an alternative global distribution strategy when entering into international markets.

4. The alignment of supply and demand is the foundation of the logistics process. Failure to plan and forecast effectively can lead to a mismatch in the supply chain. Reducing the supply–demand mismatch can lead to improved customer service, additional sales and thus an increase in profits.

Indications are that the tea market is growing steadily – this provides Setšong Tea Crafters with an opportunity to craft a foothold in the market and grow their business gradually.

As demand for their product starts to increase, the business is going to need a strategy to ensure that they balance supply and demand, to deliver their product profitably and grow their business.

Setšong Tea Crafters have received an order for 1 000 units of tea from a tea distributor in the United Kingdom, who indicated that they intend to establish a relationship with Setšong Tea Crafters for a long-term partnership. The customer has asked for special packaging and labelling for their tea, to make it stand out from all the other teas in their highly competitive tea market.

5. How does trend, as a key demand pattern type, impact the consumption of tea around the world? Does that pose an opportunity or a threat for Setšong Tea Crafters?

6. Compare and contrast between sales force composite and customer surveys as qualitative forecasting methods. With justification, recommend the most suitable method for Setšong Tea Crafters. Defend your opinion that Setšong Tea Crafters would realise increased sales through implementing supply management.

7. Explain how the Economic driver of reverse logistics could lead to Setšong Tea Crafters having to embark on a reverse logistics process. 

8. Examine how operational barriers could potentially deter Setšong Tea Crafters from implementing an effective reverse logistics process

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