TRƯỜNG ĐẠI HỌC KINH TẾ QUỐC DÂN

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INDIVIDUAL ASSIGNMENT
CHAPTER 2 – CASE STUDY: SURPLUS STYLES

COURSE
SUPPLY CHAIN MANAGEMENT
LECTURER
Dr. Nguyen Bich Ngoc

Student: Tran Duc Quy

ID: 11203317
 Table of contents
Page
1. Introduction................................................................................................................................2
2. Related concepts.........................................................................................................................2
2.1. Business strategy and supply chain strategy.........................................................................2
2.2. Sourcing strategy in building supply chain strategy.............................................................2
2.3. Competition in the market place...........................................................................................3
3. Case study: Surplus Styles........................................................................................................4
3.1. Summary of the case.............................................................................................................5
3.2. Question 1: Identify the steps that Derick should take to solve his problem........................5
3.3. Question 2: Should Derick ask for the required changes from the current suppliers? If they
do not comply, should he solicit new suppliers? How might he do this?....................................5
3.4. Question 3: Should Derick go through a competitive bid in the future? If so, should he do
it for all purchased products or just some products?....................................................................6
3.5. Question 4: What are the differences when looking for suppliers to meet cost standards
versus quality standards?.............................................................................................................6
4. Conclusion...................................................................................................................................6
1. Introduction
In the market, each company has a different business strategy. From business strategy, they
develop their own strengths to have different advantages in the market. This also needs major
support from their supply chain strategy. And in that, sourcing strategy is an important part of
building an effective supply chain.
On the other hand, the decisive factor to the success of the company is customers and market
trends. Companies always have to change to keep up with market trends. This requires them to
develop an efficient and flexible supply chain strategy. Every change in business strategy leads
to a change in the supply chain. The case study Surplus Styles is a prime example of this opinion.

2. Related concepts
2.1. Business strategy and supply chain strategy
To be able to develop in the market, companies need to have a long-term development plan to
help maintain competitiveness with rivals. A business strategy is a plan that clearly defines the
company's long-term goals, how it plans to achieve these goals, and the way the company plans
to differentiate itself from its competitors. To implement a business strategy, companies need a
supply chain strategy - a long-range plan for the design and ongoing management of all supply
chain decisions that support the business strategy.

2.2. Sourcing strategy in building supply chain strategy

A supply chain strategy needs unique adjustments to help the company achieve its overall
business strategy. Therefore, building a supply chain strategy must consider traditional business
functions and their impact on the supply chain. These are the building blocks of a supply chain
strategy and include the following:
 Operations strategy
 Sourcing strategy
 Distribution strategy
 Customer service strategy
In the case study, the situation will relate mainly to the out sourcing strategy.
Sourcing strategy is a strategy to help a company do business by determining what parts will be
outsourced and what will be done internally. An effective sourcing strategy helps the company
reduce costs, increase efficiency, and helps focus on the parts of the company that have a
competitive advantage. In addition, the sourcing strategy will change if the company changes its
supply chain strategy. The change will be based on the criteria the company chooses to compete
with other competitors in the market.
2.3. Competition in the market place
In the market, each company has a distinct business strategy. Different strategies lead to different
ways of competing. The way a company competes in the marketplace is called competitive
priority. Supply chain strategy relies on this to build up the supply chain. There are five primary
competitive priorities: cost, time, innovation, quality, service.
In the case study, it is mainly about the two competitive priorities of cost and quality.
3. Case study: Surplus Styles
“Surplus Styles is a manufacturer of hair care products, including shampoos, conditioners, and
hair gels. The company, located in Southern California, bottles the shampoos and other various hair
products in their manufacturing plant, but sources the content from a number of chemical suppliers.
The company has historically competed on cost and has used competitive bidding to select suppliers
and award yearlong contracts. The Director of Sourcing, Derick M. Frizzle, has managed the
competitive bid process for the past 10 years, having moved up the ranks from purchasing. He was
particularly proud that the company was cost-competitive in its market segment.
One recent day the president of the company, Frederick Davenport, called for a meeting with Mr.
Frizzle. Derick could tell from the tone of Davenport’s message that the meeting would be
accompanied by less-than-stellar news. As Derick took the infamous ride up the wood-paneled
elevator with green marble floors to the top of their office building, he contemplated what he could
have possibly done wrong. He had followed the same type of supplier bidding process for years and
the company was doing well financially. He was anxious to hear what Davenport had to say.
Derick entered Davenport’s vast office, a room highlighted by ceiling-to-floor windows. He
could see Mr. Davenport sitting at the end of the long, dark wooden table, with each one of his two
aides accompanying him on each side. The man on the right was Bo Jenson and the woman on the left
was Gertude Masterson; neither were taken lightly within the company. Derick could always tell when
it was going to be a bad day.
‘‘Darn hippies,’’ Davenport rumbled. ‘‘Bo and Gertude have some troubling news. This swing
towards animal rights and ‘quality goods’ is about to cost me a lot of money,’’ Davenport continued,
making mocking ‘‘bunny ears’’ with his bulbous index and middle fingers. ‘‘Apparently market
trends are changing again and not for the better.’’ Davenport continued to explain that there was going
to be a change in the competitive strategy of the firm. The competition in the hair care market had
become fierce and there was greater focus on quality. Specifically, the recent trend in animal rights
and natural, organic products meant ensuring that the shampoo content did not go through animal
testing and that it was ensured to be hypoallergenic. The current products were produced to compete
for price and did not agree with the new demands. Davenport wanted to see products on the retail
shelf with this quality standard as soon as possible. ‘‘Do it,’’ Davenport continued and sat back down.
This concluded the meeting. Luckily Mr. Frizzle had an easy exit as he had only gotten one foot in the
door before his task was demanded.
Derick M. Frizzle was rather pleased with his new detail as he cared greatly for nature and had
always refrained from purchasing his own company’s products due to their lack of consideration for
both the individual and the environment. However, Derick was now confronted with a problem. His
current suppliers offered the lowest cost in the business and would likely not be able to provide the
needed quality assurances. His expertise had been in procuring the least expensive ingredients
available and he did not know where to begin changing his sourcing practices.”

3.1. Summary of the case

Surplus Styles, a manufacturer of hair care products, has a cost-competitive strategy in the
market. Recently, however, the market trend has been more focused on quality. Specifically,
customers pay attention to animal rights and natural, organic products mean that the shampoo
content did not go through animal testing and that it was ensured to be hypoallergenic. While the
company focused on producing competitively priced products and this did not match the new
demand.
Faced with this situation, the company decided to change its strategy from competing on price to
focusing on product quality. This was assigned to The Director of Sourcing, Derick M. Frizzle.
However, there is a difficulty that the company's suppliers have offered the lowest cost and it is
difficult to guarantee the quality according to the new requirements. In addition, Derick's
expertise over the years has been procuring the cheapest ingredients and he hasn't yet begun to
change sourcing practices.

3.2. Question 1: Identify the steps that Derick should take to solve his problem.
Currently, Derick has two big problems. The first is that the company's suppliers focus on
reducing costs, so they cannot guarantee the quality according to the new requirements. The
other is Derick's lack of experience in developing high-quality products as his job over the years
has been to keep costs as low as possible.
The company's business strategy has changed. This requires a new supply strategy to help the
company meet the goal. Therefore, the first steps Derick needs to do is build a new relationship
between the supply chain strategy to be consistent with the business strategy.
The production of products that match the new requirements is a priority for the company.
Therefore, Derick next needs to work with chemical suppliers to assess the competitiveness of
the new product in the market, the supplier's cost and manufacturability. Although they were
previously focused on cost, they were forced to change to achieve new competitive priorities.
Derick also needed to find new suppliers capable of meeting the company's requirements. This is
to prevent failed meetings when the old chemical suppliers of the company cannot guarantee
product quality - the most serious problem, and at the same time ensure the smooth working of
the supply chain.

3.3. Question 2: Should Derick ask for the required changes from the current
suppliers? If they do not comply, should he solicit new suppliers? How
might he do this?
Making new products that meet the new criteria is the biggest priority of the new supply chain.
On the other hand, the most important part of the product - product content is outsourced from
external chemical suppliers while Surplus Styles only handles bottling in their manufacturing
plant. As such, a critical part of the supply chain is directly related to the supplier's capabilities.
Therefore, requesting changes is mandatory for existing chemical suppliers.
Of course, if the suppliers do not comply, of course Derick needs to solicit new suppliers.
Otherwise, the new supply chain will be disrupted or the company's products will not be able to
meet market trends.
Derick has managed the competitive bid process for the past 10 years. Simply, he needs to do the
same thing with the new specifications.

3.4. Question 3: Should Derick go through a competitive bid in the future? If so,
should he do it for all purchased products or just some products?
Derick and the company have worked effectively with this strategy to select suppliers and award
yearlong contracts. This helps to reduce costs significantly so that the company can be
competitive in the market. That's why Derick should continue.
Derick should do this for every purchased product. Organic products that are not tested on
animals are more expensive than older products, and so are the production costs. So Derick will
need to keep costs as low as possible. If it is effective, the company will be able to gain both a
cost and a value advantage.

3.5. Question 4: What are the differences when looking for suppliers to meet cost
standards versus quality standards?
The significant difference when looking for suppliers to meet cost standards versus quality
standards is if the suppliers only focus on reducing cost, the quality will be low and their supply
chain may be not efficient. An example is the Surplus Styles’ suppliers. Their suppliers only
focused on reducing the cost so that they couldn’t ensure the quality assurance when the
company required changes. Conversely, if the suppliers have quality standards, the cost will be
high.
Moreover, each supplier will be suitable for the supply chain strategies of different companies.
The cost standard supplier helps the company compete on cost, reducing the price of the product,
while the quality standard supplier helps the company compete on quality. Each company needs
to clearly define their competitive priority over which supplier they will prioritize. There is also a
point to note that customers consider when buying is the value of the product.

4. Conclusion
The Surplus Styles case study demonstrates the importance of building an efficient and resilient
supply chain. The relationship between business strategy and supply chain strategy has always
been identical. At the same time, companies need to have experience in using the right suppliers
so as not to disrupt the supply chain when there are changes.
Moreover, the flexibility and acumen in capturing market trends often help companies to
increase the responsiveness of their supply chains to changes in the market. Changing to keep up
with market trends gives companies an important advantage over their competitors.

REFERENCES
“Supply Chain Management: A Global Perspective” by Nada R. Sanders