Farcent Company Case Study

1. Explain distribution, logistics, and production problems and limitations that an own-brand manufacturer in CPG industry faces. Distribution: there are three types of distributions channels in Taiwan CPG industry: Wholesale and retail chain store, distributor and Pxmart. In Farcent case, wholesaler and retail chain stores generate highest sales revenue. However these hypermarkets and chain stores are booming with competitive advantage to ask manufacturer to pay more for distribution fee. Indeed, it is more difficult to raise operation efficiency to lower kinds of cost due to the fact that downstream distribution channels are getting advantage on price. Farcent’s distributors are the best partners to support Farcent sales and marketing activities and generate the highest gross margin for Farcent. However, the scale and management system of distributors are usually small and simple compared to others 2 types of channels. There is a serious stuff problem in Pxmart channel. Since Farcent had no strict rules in replenishment model before, plus commission was counted by delivery time fixed percentage, some agents would order continually to increase delivery. However, there is no real demand, as result the inventory turnover time period was high to 3.5 to 4 months.

Logistics: In the early years the logistics activities were under production department to take advantage of having flexible delivery, but it is hard to reach the most effectiveness of warehouse management and resulted in high costs of logistics and warehouses. Moreover, the fine is incurred if Farcent cannot on time deliver its goods to wholesales and retail chains. Indeed, in order to cope the peak season high demand and promotion times, Farcent needed to hire temp drives, which raises transportation cost. And if unable to deliver on time, Farcent had to pay huge amount to retailers and distributors. Started from 2003 summer, Farcent decided outsourcing of logistics, and Chin-Mao logistics was chosen to