Supply Chain Complexity in a Tea Manufacturing Company
This case study examines the supply chain challenges faced by Tehnido, an Indonesian ready-to-drink tea manufacturer with roots dating to the 1940s. As the company expanded its product range from classical bottled jasmine tea to multiple fruity tea varieties, its supply chain processes grew increasingly complex. The paper identifies the major supply chain problem, compares two product lines (Fteh and Goteh) in terms of logistics difficulty, analyzes the causes of temporary demand increases, and evaluates the advantages and disadvantages of vertical integration versus outsourcing. It also discusses how information distortion and the bullwhip effect manifest in this supply chain, and proposes actionable recommendations including product range rationalization, third-party logistics, and improved information sharing.
- Company Overview and Major Supply Chain Problem: Tehnido's background and growing supply chain complexity
- Comparing Fteh and Goteh Supply Chain Challenges: Key differences between two product line supply chains
- Causes of Temporary Demand Increases: Promotions, price hikes, and seasonal events drive spikes
- Information Distortion and the Bullwhip Effect: How distortion emerges and how to reduce it
- Vertical Integration vs. Outsourcing: Advantages and Disadvantages: Trade-offs of each strategic supply chain approach
- Recommended Solutions and Implementation: Chosen strategy and practical implementation steps
✍️ How to write this paper — guide, tools & examples ▾
What makes this paper effective
- The structured case study format — moving from facts to problem to solutions to implementation — provides a clear, logical progression that is easy for readers to follow.
- The direct comparison table between Fteh and Goteh supply chains grounds abstract supply chain concepts in concrete, product-level detail.
- The paper draws on well-regarded supply chain literature (Lambert & Cooper, Lee et al.) to support its analytical claims, adding academic credibility to a practical business case.
- The discussion of the bullwhip effect is applied specifically to the company's context, demonstrating the ability to translate theoretical frameworks into real business scenarios.
Key academic technique demonstrated
The paper demonstrates applied case analysis: taking established supply chain management theory — particularly the bullwhip effect and make-or-buy strategy frameworks — and mapping them directly onto the operational realities of a specific company. Rather than describing theory in the abstract, the student uses the Tehnido case to show how phenomena like forward buying and demand distortion actually emerge in practice.
Structure breakdown
The paper opens with a company background and problem statement, then presents two strategic solutions (vertical integration and outsourcing) with their respective trade-offs. It concludes with implementation steps and a detailed appendix that addresses five analytical questions: a supply chain diagram, a product comparison, causes of demand spikes, meeting recommendations, and strategies to reduce information distortion. The appendix constitutes the analytical core of the paper.
Company Overview and Major Supply Chain Problem
Tehnido is a company that produces a renowned brand of ready-to-drink tea in Indonesia. The company has an extensive history and experience in the tea business, having started as a small home business in Indonesia during the 1940s. The founder began the tea business in Central Java before relocating to Jakarta after approximately two and a half decades, with the primary aim of capturing a greater market share. In addition to its classical bottled jasmine tea, Tehnido also manufactures various fruity tea products distributed through different channels.
The major problem facing Tehnido is that the increasing assortment and range of products has made its supply chain management processes progressively more challenging and difficult to coordinate. This growing complexity makes it problematic to manage the supply chain effectively.
Two possible solutions were identified: outsourcing and vertical integration. The chosen solution is vertical integration, on the basis that it provides the company with greater certainty regarding supply and demand, while any associated inefficiencies can be identified and addressed. Implementation measures include reducing product variety, engaging third-party logistics providers, and increasing information sharing across the supply chain.
Comparing Fteh and Goteh Supply Chain Challenges
The following comparison illustrates the key differences in supply chain challenges between the two bottled tea product lines, Fteh and Goteh.
Fteh: A large proportion of sales are conducted through modern market outlets, where regular promotional events presented by retailers create short-term demand increases as a matter of course. The product line features numerous variations at low volume, making demand difficult to forecast and supply policies difficult to determine. Additionally, empty glass bottles must be returned to the factories, creating complex reverse logistics activities.
Goteh: The majority of sales are conducted through traditional market outlets, with essentially no promotional programs from selling outlets that would prompt short-term demand spikes. The product line has minimal variations at high volume, making demand comparatively easy to forecast and supply policies more straightforward to establish. All Goteh products are one-way — they do not need to be returned to the factories, eliminating reverse logistics complexity.
Causes of Temporary Demand Increases
Several factors cause temporary increases in demand and orders within Tehnido's supply chain.
The first cause is the promotional programs presented by retailers. Various types of promotional programs may be introduced, such as prize draws or buy-two-get-three offers. Although transitory, the resulting demand increase is real in that it drives an actual rise in end-user consumption (Lambert & Cooper, 2000).
The second cause is price increases announced by Tehnido. A price increase prompts forward buying among wholesalers and retailers. As described in the case, the company typically publicizes price increases two weeks before they take effect, providing sufficient time for supply chain intermediaries to purchase stock at the old price and sell it at the new price. Unlike promotional programs, which stimulate additional consumption, price increases do not generate real end-user demand growth. The demand increase occurs only in the middle of the supply chain, while demand from end customers remains unchanged or declines (Lambert & Cooper, 2000).
The third cause is seasonal occasions such as the New Year and religious festivities. These events temporarily and genuinely increase demand — not just at the mid-supply-chain level, but at the consumer level as well. Retailers and wholesalers tend to increase their orders in anticipation of rising consumer demand. While the timing of such increases is predictable, the magnitude remains somewhat uncertain. From a marketing perspective, a demand increase is a positive outcome; however, if the increase is confined to the middle of the supply chain, or if the costs associated with it are substantial, it may not generate meaningful value for the company (Lambert & Cooper, 2000).
Regarding product range rationalization — the topic of a second supply chain management meeting — one key recommendation is to reduce the range of fruit tea products. Doing so would minimize time lost to product substitution, including time spent cleaning mixing tanks, adjusting equipment settings, and retraining workers on new products. Technical complications in logistics and inventory control for both raw materials and finished goods would also diminish as the product range narrows. Demand forecasting becomes considerably simpler with fewer product variants to manage.
References
Lambert, D. M., & Cooper, M. C. (2000). Issues in supply chain management. Industrial Marketing Management, 29(1), 65–83.
Lee, H. L., Padmanabhan, V., & Whang, S. (1997). The bullwhip effect in supply chains. MIT Sloan Management Review, 38(3), 93.
Lee, H. L., Padmanabhan, V., & Whang, S. (2004). Information distortion in a supply chain: The bullwhip effect. Management Science, 50(12_supplement), 1875–1886.
Lehtinen, T. (2010). Advantages and disadvantages of vertical integration in the implementation of systemic process innovations: Case studies on implementing building information modelling (BIM) in the Finnish construction industry.
Tayauova, G. (2012). Advantages and disadvantages of outsourcing: Analysis of outsourcing practices of Kazakhstan banks. Procedia — Social and Behavioral Sciences, 41, 188–195.
Create your account
Always verify citation format against your institution’s current style guide requirements.