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Baman Technology Building Supply Chains For Boundaryless Dining Case Solution

Solution Id Length Case Author Case Publisher
2293 4611 Words (16 Pages) Xiande Zhao, Liyang Ruan, Liang Wang China Europe International Business School : CB0065
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As a start-up, Baman served authentic Hunan Changde beef rice noodles, earning its restaurant chain great popularity online through successful community marketing. It then innovated its business model by breaking time and space restrictions of traditional eateries and diversifying its portfolio to include dine-in, take-away and retail products. However, after expanding its retail SKUs, Baman suffered from a bloated inventory and faltering cash flow at the end of 2017. Company founder Zhang Tianyi then realized the importance of supply chain management and the different characteristics between the restaurant and retail supply chains. Since 2018, Baman has made relentless efforts to build on supply chain management capabilities by clearly defining supply chain strategies, tactically segmenting the management of the restaurant and retail supply chains, and improving supply chain efficiency while reducing costs through upstream and downstream collaboration. The case ends with an open discussion: how could Baman manage more complex supply chains to boost efficiency with lower costs?

By depicting the story of a start-up, this case expands on how a company can improve its supply chain to facilitate business model innovation, which may serve as a reference for supply chain management of small and medium-sized enterprises in other sectors of the real economy.

Following questions are answered in this case study solution

  1. Introduction

  2. Analyse Baman’s strategies for its restaurant and retail supply chains from the perspective of product demand and supply characteristics. How could the newly defined retail supply chain strategy help Baman out of its excessive inventory predicament?

  3. How could Baman enhance supply chain performance through supply chain integration and collaborative innovation to support its “boundary-less dining” business model?

  4. Discuss the type of the supply chain strategy that Baman are using (efficient or responsive), and if this strategy is supporting the competitive priorities of the organization.

  5. What do you think of Zhang Tianyi’s three options? What specific suggestions can you make for each of them?

  6. Recommendations

  7. Conclusion

Case Analysis for Baman Technology Building Supply Chains For Boundaryless Dining Case Solution

i. Issues Baman facing

At the end of 2019, Zhang decided to focus on Beijing and Tianjin to reach 100 restaurants regionally as soon as possible. Baman opened around ten new restaurants in the first half of 2020 at a cost of ¥20 million. However, the January outbreak of COVID-19 in China greatly disrupted Zhang’s plans. All provinces, municipalities, and autonomous regions in the country declared the highest-level public health emergencies within a few days of each other to control the virus. The measures restricted movement, and no one went out to eat. Baman suspended its restaurant business for at least two months, including the key Spring Festival period. Most restaurants faced the same dilemma. Some big chain companies such as Xibei, which runs over 200 eateries nationwide, said they would run dry on cash within a few months if the epidemic continued.

Thanks to its growing retailing business and supply chain management capabilities, Baman was able to survive the crisis. Baman’s online orders for pre-packaged food increased by 300%. Baman’s retail products became the next-best option for beef rice noodles fans who were unable to eat in-store. Online food purchases surged during the epidemic, and this brought in many new customers. As a result, Baman’s retail inventory ran out within weeks. The company’s close supplier relationships meant that upstream players were willing to work overtime (even overnight) to ensure Baman could meet surging online demand. Baman had also reduced its supply chain complexity (i.e., fewer SKUs) for its retail business, and this led to a lower risk of supply disruption during the outbreak.

While many traditional restaurant companies were in danger of bankruptcy, Baman survived thanks to its unique “boundary-less dining” business model and supply chain management capabilities. Zhang also made suggestions to other traditional restaurant companies on how to run an online business to overcome the difficulties together. As of August 2020, “Restaurant plus Retail” was fast becoming a buzzword in China’s restaurant industry, and Baman, a leader in this model, was growing steadily in both business lines

2. Analyse Baman’s strategies for its restaurant and retail supply chains from the perspective of product demand and supply characteristics. How could the newly defined retail supply chain strategy help Baman out of its excessive inventory predicament?

i. Baman’s Strategies
  1. Baman follows a clearly-defined positioning: Baman positioned itself as a virtual manufacturer in the supply chain, participating in the two-end activities only, leaving other functions or supply chain links to specialized partners. Since its key resources lay in branding and customer relationship management, it was reasonable for Baman to keep an “asset-light” supply chain model that focused on R&D, marketing, and restaurant management, and outsourced middle-stage activities like procurement, production, and logistics. Supply Chain integration, however, should have received more attention.

  2. Baman Segment Supply Chains: Baman made a distinction between the restaurant and retail supply chains, providing customers in different segments with core products that boasted consistent flavor but different production processes. In the meantime, Baman intentionally differentiated non-core products by segment to develop different supply chain capabilities in each one.

Demand and Supply Characteristics of Baman Products and its Supply Chain Strategies


Characteristics of Demand

Characteristics of Supply

Restaurants Business

High Uncertainties

  • Lower Sales volume per SKU on average

  • Serving diners in the Beijing-Tainjan region

  • Except for some classic dishes, the dine-in menu needs to be updated from time to time to attract and retain consumers; there are also seasonal dishes available.

  • Higher frequency tends to increase customers’ expectations of something new on each visit. As innovative restaurant concepts keep emerging, consumers are encourage to be “fond of the new and tired of the old”.

Lower Uncertainties

  • On average, there was lower minimum order quantities per SKU.

  • More stable supply of BAMAN.

Retail Business

Lower Uncertainties

  • Lower consumption frequency; snacks and convenience foods are consumed occasionally not every day.

  • Serving consumers nationwide.

  • Higher sales volume per SKU on average

  • Consumers are more inclined to accept classic products like Ferrero Rocher or Kangshifu Braiser Beef Flavor Instant Noodles and are less demanding for product updates.

Higher Uncertainties

  • Lower unstable supply in the early stage to stable supply as the business grows

  • Higher minimum order quantities per SKU on average.

The Baman case analysis shows that the demand characteristics varied greatly from restaurant offerings to retail products. A Baman restaurant primarily served students and office workers in the neighborhood who usually dined out or ordered take-away at noon during weekdays. The higher consumption frequency inevitably led to higher expectations on product variety and menu upgrades. The shelf life of fresh foods was also shorter, and some ingredients were available only during a specific season. As a result, Baman offered a greater variety of restaurant products, with lower sales volume per SKU on average. The company’s retail business targeted the masses nationwide. Few people ate prepackaged foods and snacks daily and the lower consumption frequency meant lower rates of obsolescence for such retail products. The longer shelf-life also allowed for stockpiling. These factors result in a higher sales volume per SKU on average. Through Fresh and prepackages foods in Chine tend to feature a more mature and stable supply process, it is not always the case, Baman, a newcomer in the retail market suffered from unstable initial supply due to a lack of tacit understanding about its partners. Besides, the two supply chains required different minimum order quantities for each SKU. The production of retail products involved more materials and processes like mold opening and packaging and therefore a higher minimum order quantity (e.g., a minimum order of 30,000 units for stinky tofu). In Zhang’s view, the supply chain strategy of minimizing complexity and increasing efficiency was a perfect match for Baman’s retail business at this stage. For a small-sized brand owner with lesser bargaining power over food suppliers, cost efficiency on the supply side came before profitability. It would be better to use supply chain metrics than market indicators to decide whether an SKU was profitable, to avoid high book profits but low working capital.

ii. Supply Chain Strategies after Segmentation (Selection)

Based on the analysis, we can say that for Baman’s restaurant business, Responsive supply chain which is the combination of high demand uncertainty and low supply uncertainty) matches well. And for Baman’s retail business, an efficient supply chain which is the combination of low demand uncertainty and low supply uncertainty would suit. As described in the case, Baman began reflecting on supply chain management in late 2017, defining the segmentation of restaurant and retail supply chains, identifying the most suitable respective strategies, which lay the foundations for improvements in business and supply chain capabilities in recent years. The primary cause of the overstocking problem in the second half of 2017 was Baman’s incorrect choice of supply chain strategy: using the same responsive supply chain for both retail and restaurant businesses. After switching to an efficient supply chain that better suited the demand and supply characteristics of retail products, Baman realized better synergies in procurement and inventory. It invested all resources in the “bestsellers” that enjoyed higher inventory turnover and stable demand (lower slow-moving risk). As a result, the firm resolved the excess stock issue (Zhao, 2020).

iii. Baman Technology: Decentralized Warehousing

Decentralizing warehousing explains that the company moves its product away further from the key investors at the central contract position and bring closer to the end of the customers. And this can only be achieved through the self-owned logistics and warehouses (Lee, 2018). Because in this way the each node of the supply chain would be tuned to meet the specific needs and demand of the customers and serve in the best way. Zhang maintained that customers who loved Hunan beef rice noodles would also want to buy other typical snacks from the province. Baman arrived at this conclusion after successful trials offering local favorites like stinky tofu and sweet dumplings as side dishes. He also noted that a large retail market already existed for products like stinky tofu, which racked up more than ¥300 million in annual sales on Taobao alone. Zhang also observed that the Hunan snack market was highly decentralized without a clear leading brand. Baman had already built a solid reputation. The company name comes from the Hunan dialect, which adds to the brand’s authenticity and credibility. Zhang and his team identified several categories of snacks that had posted yearly sales in excess of ¥100 million on Taobao, and that were not distributed by any major retailer. Baman engaged several manufacturers to make products under its brand and added nearly 40 SKUs (stock-keeping units) to its retail product line in just a few months. Zhang expected each SKU to generate ¥10 million in annual sales, bringing in around ¥400 million in total, up from ¥150 million in 2017.

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