John Kresge, vice president of supply chain, was very concerned when he left the meeting at MoonChem, a chemical specialty maker. At the end of the year meeting, financial performance was evaluated and the fact that the company was achieving only two inventory rotations per year was analyzed. A more careful analysis revealed that more than half of MoonChem's owned inventory was on consignment with its customers. This was surprising given that only 20% of their customers had consignment inventory. John was responsible for inventory and transportation costs. Therefore, it decided to analyze in more detail the strategy currently deployed by the company, particularly the issue of performance metrics related to inventory, as well as deepen its understanding of the inventory strategy on consignment, and the supplier-managed inventory strategy.

MOONCHEM OPERATIONS

MoonChem, a specialty chemical manufacturer, had eight manufacturing plants and 40 distribution centers. The plants manufactured the base chemicals and the distribution centers mixed them to produce hundreds of finished products that met customer specifications. In the specialty chemical market, MoonChem decided to differentiate itself in the Midwestern region of the United States by offering consignment inventory to its customers. The company wanted to take this strategy on a national scale if it proved to be effective. MoonChem kept the chemicals required in the Midwest region on consignment at customer plants. Customers used the chemicals as needed, and MoonChem managed the replenishment to ensure availability. In most cases, customer consumption of the chemicals was very stable. MoonChem owned the consignment inventory and received payment for the chemicals as they were used.

DISTRIBUTION IN MOONCHEM

MoonChem employed the Golden Trucking Company, a full-load carrier, for all its shipments. Each truck has a capacity of 40,000 pounds and charges a fixed rate given the origin and destination, regardless of the amount shipped on the truck. MoonChem shipped full trucks to each customer to replenish their consignment inventories, as soon as the inventory level reached its reorder point.

THE ILLINOIS PILOT STUDY

John decided to carefully study his distribution and inventory operations. He focused on the state of Illinois, which was supplied from the Chicago distribution center. For this, he divided the state into groups of contiguous ZIP codes, as shown in Figure 1. He focused attention within the Peoria region, which was classified with the 615 ZIP code. A careful study of the region revealed two major clients. , six medium and 12 small. Annual consumption for each type of customer was as shown in Table 1. Golden charged $ 400 for each shipment from Chicago to Peoria, with MoonChem's policy to send full trucks to each customer as needed (upon reaching their point of reorder).

Type of costumer	number of costumers	average consumption per customer ( poundsper month)
small	12	1000
medium	6	5000
big	2	12000

Each pound of chemical on consignment costs MoonChem $ 1, and MoonChem had a cost of capital (investment opportunity) equal to 25% per year. John intends to analyze the current situation by deploying a dashboard (performance metrics) that are relevant to the company and especially to the current situation. You are also interested in having a deep understanding of inventory or consignment strategies, and supplier-managed inventory, although this can wait for a second round of analysis.

A) Background and description of the current situation and the problems faced by the company.

B) Research of concepts, models and / or tools to use.

C) Report of the relevant elements of the diagnosis.

D) General conclusions and main learning from the deployment of this phase within the case study.

Answer rating: 100% (QA)

1 MoonChem was facing an issue because his company was achieving only two inventory turns per year but a more careful analysis revealed that more than half of the inventory owned by him was on consign... View the full answer