School of Engineering & ICT KXO325 Business Logistics Practical 7.0 Warehousing1 John Vance, president of Vanity Products, is reading the latest financial results reported in the company newsletter. Every time he reads this year’s financials, he recalls the company’s early days and the struggle to get retailers to stock his new line of bathroom vanities, mirrors, and light fixtures. Today, the company is straining to produce enough products to meet retailer demand.

Vanity Products (VP) manufactures a variety of bathroom accessories, including vanities (medicine chests), mirrors, lighting fixtures, and shelving. The products are made of rust-­‐ and chip-­‐resistant molded plastic and come in a variety of modern designs and colors. The plastic construction permits VP to produce high quality bathroom accessory at an affordable price.

In the middle of the 1990s, John focused the company’s marketing attention on the large home center chain stores: Home Depot, Wal-­‐Mart, Sears and so on. Today, more than 80 percent of VP’s sales are to these retail chains, and they account for 95 percent of its growth.

Without these chain store customers, VP would still be a small, struggling manufacturer.

John’s pleasant memories quickly fade to the realities of dealing with these large chain retailers. In the past two years, VP has been required to install EDI software that permits the buyers to assess VP’s inventory data file to determine availability, to place orders, and to verify shipment status. The latest demand from one of the chains, which is a precursor of what the others will want, is for VP to reduce cycle time by shipping orders directly to the stores.

Currently, VP receives an order that is a consolidation of store orders to be served from a chain distribution warehouse. The order is sent in truckload quantity to the distribution warehouse, where the individual store order is broken out and sent to the store. Now, each store will be ordering separately, and VP is to deliver the order within five working days.

When John approached Tom White, manager of logistics, with the latest demand, Tom was not very comforting. He indicated that freight costs would certainly increase because VP would be shipping less-­‐than-­‐truckload quantities at higher freight rates. This higher freight cost could be offset with freight consolidation software that combines store shipments into truckload quantities for peddle runs. John liked the idea of keeping freight costs down, because VP would have great difficulty increasing prices because of competition.

However, the freight consolidation strategy would increase the shipment holding time prior to dispatch, thereby making it difficult for VP to meet the requirement that orders be delivered within five working days. Since cycle time reduction is the primary objective of the chain store’s demand, any process adding to the delivery time would not be acceptable.

1 Based on case study featured in: Coyle, J., Bardi, E., Langley, C., South Western (2003), pp. 321-322.

Tom is working on an idea to establish a series of distribution warehouses in the market areas where the chain stores are located. Tom’s vision includes truckload shipments from the plants to the distribution centres, and cross-­‐docking of products from incoming trucks to trucks delivering orders to specific stores. In addition, each distribution warehouse would maintain a minimal level of inventory to meet emergency orders placed by local stores.

John is skeptical of Tom’s distribution warehouse idea because he feels it would increase capital costs, inventory levels, and transportation costs. He is not even certain it would meet the delivery time requirements.