You were recently hired as the VP of Logistics for the ABC
Manufacturing Company. This is a new position. During the lengthy
interview process, the CEO shared her strategic plans for worldwide
growth in the company’s consumer sales. Previously, sales had been
confined to domestic sales only. As a result of little staff logistics
expertise, the company had kept the traditional logistics model of
shipping all finished products from its warehouse and factory location
on the East Coast of the United States, even though there was a growing
market on the West Coast that competition was serving from a West Coast
warehouse. However, the CEO pointed out that despite its national
popularity from a feature and quality perspective, it seemed to
penetrate poorly on the West Coast because of her need to charge higher
prices as the result of higher shipping costs.
The marketing manager tried to mitigate this competitive disadvantage
by freight equalization so that end customers would pay the same amount
of shipping costs as West Coast competition charged, regardless of
where they were located. This met with some insignificant success
because timeliness of delivery was another important issue. Therefore,
the CEO had asked you, as your first assignment, to write a white paper
to address the following specific points. She remembered that you had
quite a bit of experience addressing some or all of these issues during
your career. As a stickler for formatting, she has specifically asked
you to use the following Roman numeral sections and headings in the
paper:
Section I: Introduction (300 words)
- In general, what are the qualitative pros and cons for
domestic sales of having multiple distribution centers and shipping
locations in the United States? - In general, what are qualitative
pros and cons of having one or more international distribution centers
for international sales, as opposed to shipping directly from a U.S.
manufacturing location warehouse? - What are the opportunities and challenges of being a supplier to an internationally based mass merchandiser?
Section II: Decision-Making Criteria (500–750 words)
The CEO is considering either expanding the warehouse next to the
East Coast manufacturing plant; or for the same total construction and
operating costs, building a West Coast distribution center; or for the
same total construction and operating costs, building a combination
manufacturing and warehouse location on the West Coast. As a completely
separate issue, she is also considering opening a distribution center
overseas, to serve the fast-growing warm weather markets of France and
Spain.
Given the following general information, what are at least 10
criteria that must be considered when locating a new or expanded
shipping warehouse domestically? Internationally?
- The products are primarily medium- and large-size
insulated coolers, like you might use for a picnic or trip to the beach.
As a result, no matter what mode of shipping is used, transportation
firms charge by space, or cubic feet, rather than weight, which is the
more normal method. - The coolers are made of 3 components, which are all produced by suppliers solely on the East Coast.
- The market is very competitive with generally stable or decreasing marketplace prices because of this competition.
- In
states and countries that are warm year-round, sales are pretty steady;
in countries and states that have seasons, 90% of sales occur in the
May–August period. - The raw materials to make this product are
bulky, and inbound shipping from the East Coast suppliers currently
represents 20% of total raw material costs. - Domestic demand is expected to increase 5% annually; international demand is expected to increase 15% annually.
- Right
now, to keep West Coast customers happy, the CEO says that they only
charge those customers the local freight cost of shipping, which is $200
for anything up to half a truckload. - The current exchange rate is 1 euro = $1.50.
Section III: Metrics to Assess Success (300–400 words)
- Identify and describe at least 5 metrics that you would
use to assess the success of any logistics plan involving you as a
manufacturer and an internationally based mass merchandiser. - Why did you pick these?
Section IV: Quantitative Factors (Excel Spreadsheet)
What is your quantitatively based recommendation based on the data in
section II and below as to whether you should open a West Coast
distribution center to address West Coast customers, just add on to the
existing East Coast factory and warehouse, or build a combination West
Coast manufacturing location and warehouse?
Use this template
to show your numeric calculations. Without calculations shown for how
you reached your conclusion, section IV will earn 0 points. REMEMBER: Decisions like this are based on a comparison of option A versus current methods, or option B versus current methods.
- The products are primarily medium- and large-size
insulated coolers, like you might use for a picnic or trip to the beach.
Each cooler occupies 2 cubic feet of trailer truck space; trailers are
10 x 10 x 40’ long and cost $1,000 to ship from the East Coast to the
West Coast. - The coolers are made of 3 components: 1 lb of raw
material A, 1/4 lb of raw material B, and 1 gallon of material C,
weighing 10 lbs. Based on this information, the added freight cost to
get raw materials to a West Coast manufacturing location would be $0.20,
$0.20, and $0.60 per finished-good unit, respectively. - The mass
merchandiser location on the West Coast will be purchasing 10,000 units
per week, but in lots of only 1,000 at a time because of their retail
store space constraints. - The market is very competitive, with generally stable or decreasing marketplace prices.
- In
countries that are warm year-round, sales are pretty steady; in
southern countries and states or those that have seasons, 90% of sales
occur in the May–August period. - The raw materials to make this
product are bulky, and inbound shipping from the suppliers to the
manufacturing plant represents 20% of total raw material costs. These
raw materials are supplied in the United States from the East Coast;
they are not available elsewhere. - Domestic demand is expected to
increase 5% annually; international demand is expected to increase 15%
annually in France and Spain, but only 2% in Northern European
countries. - In the past, to keep West Coast customers happy, the
CEO agreed to freight equalize customer shipping charges to be
competitive with West Coast competition. She says that they only charge
those customers the local freight cost of shipping, which is $200 per
delivery for anything up to half-truckload quantities.
Section V: nonquantitative Factors (400–500 words)
Identify at least 5 subjective, nonquantitative factors to also consider in the section IV recommendation.
Section VI: Conclusion (200–300 words)
What are the 3–5 most important points that you want the CEO to understand about this entire decision-making process?
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