Case Study – Power Force Corporation
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 high fulfillment cost as retailers change their buying patterns. They all seems to want smaller, more frequent shipment to a larger number of locations. And, the retailer’s service expectations are on the rise. They are demanding advanced shipping notification, RFID tags on all products, and improved inventory visibility.
Gone are the day when the retailer bought power tools by the truckload for delivery to a few regionally dispersed DCs. Instead, they are asking for smaller shipments to multiple DC 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, Lower’s, and True Value) account for more than 80% of PFC 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 fulfillment team, Himmer has come to the conclusion that he has three reasonable options to address the emerging marketplace requirement:
Option 1 – Upgrade the existing PFC DC in Kentucky to handle multiple order types and smaller shipments. Deploy warehouse automation to improve over fulfillment speed and efficiency.
Option 2 – Expand the LFC fulfillment network. Add regional DCs in Nevada and New Jersey to the existing Kentucky DC. Modify operational processes and flows so that orders for DC, stores, and individual consumers can be fulfilled.
Option 3 – Outsource fulfillment to a capable third party logistic company so that PFC can focus its effort 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 confident in his recommendation.
1) Compare and contrast the (3) three options from (the perspective of customer service)/(The perspective of cost)
Compare and contrast the3 options from perspective of customer service:
Compare and contrast the 3 options from perspective of cost:
2) Which do you believe will provide the (best level of service)/(most economical solution for PFC)? Why (4 Marks)
Which will provide the best level of service? Why?
Which is the most economical solution for PFC? Why?
3) What types of functional and cost trade-offs will Himmer need to analyze (6marks)
- Distribution – transportation tradeoff
- Distribution – Inventory tradeoff
- Distribution – customer Service tradeoff
4) Which distribution option do you feel give Power Force Corporation the best opportunities for future success? Why?