Hong Kong’s Hen Hao Trading Company has problems with its supply chain network. The company lacks enough supply of raw materials (quantity). It cannot produce products by itself, and hence needs to source them from the foreign manufacturers particularly in the US.
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The company needs to redesign its supply chain network and employ the best strategies that will ensure a steady supply of products from the foreign companies. Through the use of researches, the company can get relevant information for suppliers in the US, and come up with the best choice after assessing the suppliers’ capabilities. This will help it note the company that meets its specifications both today and in the future.
The manufacturing companies in the United States also have problems with transactions because of difficulties in penetrating their products to Hong Kong. The companies required to get involved in transactions have varying approaches and specifications. For instance, Gumpbell’s supplying approach demands periodic price adjustments, while that of Hen Hao demands fixed price within a specified period.
The differences in their specifications make transactions difficult. To curb this problem, both the preferred buyer and preferred suppliers should engage in a meeting, discuss and come up with a mutually agreed contract. This agreement may entail the specifications of both parties, future transactions, and the purchase order proposals among other things that should be adhered to after the start of transactions. For instance, hen Hao and Gumpbell can settle their differences and transact businesses efficiently with each other.
Financial risks and development solutions
From the case study, it is evident that companies, both suppliers and buyers incur huge losses due to increased costs in their operations. Business organizations should follow the business rule of satisfying customers profitably (Nellore, 2001).
They should curb financial risks surrounding them in order to make profits. This can be achieved by cutting on costs and maximizing on profits. Hen Hao Company has financial problems, and that is why it insists on looking for a manufacturing company that will agree to sign a contract of supplying products at a fixed cost for three years. However, Gumpbell, one of the suppliers does not favor long term supply contracts with its customers.
The firm insists on price adjustments, rather than fixed prices. The company employs this approach in order to cut costs, and hence curb financial risks associated with fixed-price contracts. This shows that if the company agrees to sign the contract with Hen Hao in fixed price terms, it will experience financial problems. It is recommendable for the two firms to engage with each other, discuss and consider both sides to come up with decisions that favor both sides.
The differing foreign exchange rates also contribute to financial risks, as shown in the case study. It is essential to set prices for products differently depending on the current exchange rates. This can ensure that international companies run at a profit without expensing buyers or sellers.
The issue of quality is also a concern in the case study, and it contributes to both financial and transaction risks. Companies do not prefer signing transaction contracts with low quality manufacturers (Nellore, 2001). It is risky to purchase low quality products as this can lead to huge losses. Customer satisfaction demands high quality goods and services. Low quality goods or services can make a firm lose customers, and hence incur huge losses.
If Hen Hao Company chooses a low quality product supplier, it will lose market for the products and will collapse in a very short time due to the financial risk. It is vital for the company to consider consistent supply of high quality products first before anything else. This will attract and encourage post-purchase of its products, and hence gain competitive advantage over its competitors.
Nellore, R. (2001). Managing buyer-supplier relations: The winning edge through specification management. London: Routledge.