The severity of this of this problem is showing in exhibit 1. Where total case sales of the first 5 months of 1992 were 6,8 million the sales of the first 5 months of 1993 were 15,3 million cases. So that’s an increase of 225% in sales. And when you look at figure 1 you can really see the severity of the problem. Because normally the first five months are only 27,91% of the total sales in a year. So normal sales volume would be 24,3 million cases. But if the increase in demand stays at the same level in the second part of 1993 then total predicted sales for all Snapple products will be 54,8 million cases.
This large increase in sales comes from Tea drinks which double and Fruit drinks that triple. And also soda increases 41%. This means for Snapple to overcome their shortages they need to more than double their normal production.
2. The problem
The main problem in this case is that Snapple at some point in time became unable to meet demand for their products. The demand for Snapple’s products is highly unpredictable and this leads to several reasons that explain the inability to meet demand.
- Snapple does not have its own production company; instead, everything is outsourced to independent companies based on fixed production quantity contracts. This leads to a limited production flexibility when demand fluctuates. When the shortage became nationwide due to the increase in demand, Snapple’s product could not be shipped from anywhere and they lacked the ability to meet demand.
- In addition, Snapple forecasts demand for a year and base the quantity in the production contracts on this forecast. However, because demand is so variable, a year is to long a period for making a decent prediction.
- Another problem is the centralized product development, purchasing, inventory and shipping activities at headquarters. Because Snapple operates in several different markets – juices, sport drinks, tea, all with different needs...