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Kip Himmer, executive vice president of operations of Power Force Corporation (PFC), is feeling stressed out. The producer of power tools for the do-it-yourself market is experiencing higher ful?llment costs as retailers change their buying patterns. They all seem to want smaller, more frequent shipments to a larger number of locations. And, the retailers’ service expectations are on the rise. They are demanding advanced shipping noti?cation, RFID tags on all products, and improved inventory visibility. Gone are the days when the retailers bought power tools by the truckload for delivery to a few regionally dispersed DCs. Instead, they are asking for smaller shipments to multiple DCs and direct delivery to stores. Some retailers are also inquiring about PFC’s ability to deliver orders for individual customers direct to their homes. This drop-shipping strategy is completely new to PFC and Himmer worries that it could create major bottlenecks at the company’s centralized DC that sits next to the factory in Louisville, Kentucky. And, all of these new requirements are accompanied by shorter order cycle time goals. Himmer feels that he is stuck between a rock and a hard place as the major home improvement chain stores (Home Depot, Lowe’s, and True Value) account for more than 80 percent of PFC’s sales. Although compliance is proving to be very expensive, PFC cannot afford to deny the requests. Doing so would have an unwelcome effect on revenues. After consulting with his ful?llment team, Himmer has come to the conclusion that he has three reasonable options to address the emerging marketplace requirements: Option 1 – Upgrade the existing PFC DC in Kentucky to handle multiple order types and smaller shipments. Deploy warehouse automation to improve order ful?llment speed and efficiency. Option 2 – Expand the PFC ful?llment network. Add regional DCs in Nevada and New Jersey to the existing Kentucky DC. Modify operational processes and flows so that orders for DCs, stores, and individual consumers can be ful?lled. Option 3 – Outsource ful?llment to a capable third party logistics company so that PFC can focus its efforts on quality production, accurate demand planning, and lean inventory management. Himmer’s next step is to fully evaluate the three options and choose a path forward before his upcoming meeting with Marcia Avis, the owner of PFC. Avis will ask tough questions and Himmer must be con?dent in his recommendation.
CASE QUESTIONS 1. Compare and contrast the three options from the perspective of customer service. Which do you believe will provide the best level of service? Why?
2. Compare and contrast the three options from the perspective of cost. Which one do you believe will provide the most economical solution for PFC? Why?
3. What types of functional and cost trade-offs will Himmer need to analyze?
4. Which distribution option do feel gives PFC the best opportunity for future success? Why?