Question

Shop n Pay is a fast-growing, diversified South African-based retailer dealing in fast moving consumer goods (FMCGs). The recently-appointed operations manager of Shop n Pay, Mr Benedict Msimanga, is currently reviewing all operations management policies of the company and has gathered the following information:

A. Internationalisation strategy

With the recent conclusion of the African Continental Free Trade Agreement (AfCFTA), the company is in the process of expanding its operations to key markets on the African continent. Countries on the radar of Shop n Pay include Kenya, Tanzania and Ethiopia in East Africa, and in West Africa, Ghana, Ivory Coast and Senegal. Market research has revealed that the four countries have favourable tax policies, stable electricity network, relatively good road network and investor-friendly business environment.

B. Inventory management

The current policy is to order 100,000 units when the inventory level falls to 35,000 units. However, forecast demand to meet market requirements for next year is 625,000 units. The cost of placing and processing an order is R250, while the annual cost of holding a unit in stores is 5% of the unit purchase price. Both costs are expected to be constant during the next year. Shop n Pay sells a unit of the product for R15.00 at cost plus 50%. Orders are received two weeks after being placed with the supplier. You should assume a 350-day year and that demand is constant throughout the year.

C. Forecasting and other supply chain activities

A recent report produced by Shop n Pay’s chief demand planner has revealed that the retailer’s reliance on simple exponential smoothing to forecast demand for its products is partly responsible for the significant bullwhip effect in the supply chain and the stock outs in the past few years. In this regard, the chief demand planner is recommending that exponential smoothing with trend adjustment (Holt’s Model) should be used to forecast demand for aggregate planning for the 2020 fiscal year.

Mr Msimanga has retrieved from the retailer’s database the following information on number of goods sold over a two–year period.

Monthly sales (‘000 units)
Year Jan Feb Mar Apr May. Jun. Jul Aug Sep Oct. Nov. Dec   2018 650 700 820 850 700 840 930 630. 860 600 1050 750 2019 750. 800 900 920 680 950 1080 742 920 705 1100. 820

Question

Discuss any SIX (6) factors motivating Shop n Pay’s internationalisation of its operations to other countries on the African continent.

Answer 1

Following are 6 factors-

1. Conclussion of  African Continental Free Trade Agreement (AfCFTA) provides suitable geopolitical and economic incentive as under this treaty import-export shall attract nil duty

2. Favorable tax regimes overseas for better profitability

3. Expansion is organic considering the model of operation is sucess at home and it is natural to take it overseas for maximum wealth generation

4. Appointment of new operations manager has brought new vision becoming one of key factor

5. Better infrastructure and investor friendly regimes

6. Increasing GDP per capita in Africa making it imperative to expand.