Friedland Timbers asa Source: Waters, C. D. J. (2019). Logistics: an introduction to supply chain management. Johann Klassen is the Managing Director of Friedland Timbers asa. which makes specialised wood products for the construction industry. He has recently been worried by late deliveries to some important customers. The industry is very competitive, and Johann knows that customers will go to other suppliers if he cannot guarantee deliveries. The marketing manager is particularly upset because he has worked with these customers for a long time, and promised deliveries that were not made. Johann asked the production manager for an explanation. She told him that ‘Our own suppliers were late in delivering certain types of wood. This shortage of a key raw material disrupted our production plans. We cannot be blamed for this. If anyone in the company is to blame, it is the warehouse manager who does not keep enough stocks of raw materials to cover for late deliveries.’ Johann then went to the warehouse manager to see what was happening. ‘There can’t be anything wrong here’, he was told. ‘Stocks have been climbing for the past year, and last month they were at an all-time high. In part, this is a deliberate decision, as I want to improve service levels to production. In part, though, stocks seem to have just drifted upwards. Now we have high stocks of most items, but there are still occasional shortages. These high stocks are causing me problems with space, and are stretching my budget. I think that the blame lies in purchasing, who do not order the amounts that we request. ’Johann saw that some stocks were drifting upwards because purchasing were buying large quantities of some materials. At the same time, they were delaying some purchases, and this produced the shortages. The purchasing manager explained to Johann, ‘Let me remind you that eight months ago you instructed me to reduce materials costs. I am doing this by taking advantage of the discounts given by suppliers for larger orders. Often I order more than requested under the assumption that we will need the material at some stage, so I get a discount and the material is already in stock when we need it. Sometimes keeping things in stock would take too much space or be too expensive, so then I might delay an order until I can combine it with others to get bigger discounts.’ Johann thought that he was near the source of his problems, and might ask for the purchasing policies to be reviewed. Then he talked to the transport manager who was not so sure. ‘It is much more efficient for me to bring larger quantities into the company’, he said. ‘If you reduce the average order size, the transport costs will rise. Our budget is already being squeezed, as we have to pay for expensive express deliveries of materials that production classify as urgent. If you lower the order size, there will be more shortages, more express deliveries and even higher costs.’ Johann talked to some major suppliers to see if they could somehow improve the flow of materials into the company. Unhappily, while he was talking to one company, they raised the question of late payments. This was contrary to Friedland’s stated policy of immediate payment of invoices, so he asked the accounting section for an explanation. He was given the unwelcome news that ‘The Company’s inventory and transport costs are so high that we are short of cash. We are delaying payments to improve our cash flow. As it is, we had to use a bank overdraft to pay suppliers for last month.’ Later that day Johann found that the late customer deliveries which had started his investigation, were actually caused by poor sales forecasts by the marketing department. They had seriously underestimated demand, and planned production was too low. All the employees at FT were doing their best, but things seemed to be going wrong. Questions: 8. Why do all the logistics costs seem to be rising at the same time? 9. What do you think are the basic problems in Friedland Timbers? 10. What would you recommend Johann do?