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 (200 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?
Section II: Decision-Making Criteria (300 words)
The CEO is considering three options with the same total construction and operating costs: expanding the warehouse next to the East Coast manufacturing plant; building a West Coast distribution center; or 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 5 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. 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 raw materials to make this product are bulky, and inbound shipping from the East Coast suppliers currently represents 20% of total raw material costs.
- The market is very competitive with generally stable or decreasing marketplace prices.
- 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.
- 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 (250 words)
- Describe 3 metrics that you would use to assess the success of any logistics plan involving you as a manufacturer and an internationally based mass merchandiser. Provide support for your selections.
Section IV: nonquantitative Factors (200 words)
Identify 3 subjective, qualitative factors to consider in the recommendation.
Section V: Conclusion (200 words)
What are the 3 most important points that you want the CEO to understand about this entire decision-making process?
Section VI: Quantitative Factors (Excel Spreadsheet)
Provide a detailed recommendation as to whether you should open a West Coast distribution center, add on to the existing East Coast factory and warehouse, or build a combination West Coast manufacturing location and warehouse? Your response must be quantitatively based using the data in section II, the additional data below, and from external resources as needed.
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 VII: Respond to the following in 250 words:
- Describe how what was learned in this mass merchandising industry could be applied to the logistics challenges in some other industry.
- Would the logistics criteria for decision making be the same as for mass merchandising? Why or why not?
- Would the logistics metrics be the same as for the mass merchandising industry? Why or why not?