BA $339$ Supply Chain Management Fall $2024$

Instructor: Cliff Allen

Leola Milling Company Case study

Leola Milling Company

Jennifer Roberts, distribution manager for Leola Milling, has become increasingly aware that the

company has a major problem as it continues to try to reduce inventories while maintaining the

levels of service its customers have come to expect.

Company and Product

Founded in $1887,$ Leola Milling has provided high$-$quality bakery flour to commercial bakeries

as well as to the consumer market. While commercial customers tend to have consistent buying

patterns as well as brand loyalty, Leola has found that consumers have minimal loyalty but also

generally prefer known names over the store brands. Demand is highly seasonal, with the annual

peak occurring just before Thanksgiving and slacking off dramatically during January and

February. To offset this, both Leola and its major supermarket chain accounts run special deals

and sales promotions.

Production planning, located at the Leola, Pennsylvania, headquarters has responsibility for

controlling inventory levels at the plant warehouse at Buffalo as well as at the three distribution

centers located at Washington, Pennsylvania; Columbus, Ohio; and Pittsfield, Massachusetts.

Planning has routinely been based on past history. No forecasting is performed, at least not in a

formal sense. Distribution Centers $($DC$\text{'}$s$)$ are replenished by rail from Buffalo; and lead times

are typically seven days, with forty$-$eight to fifty$-$four pallets per car depending upon the type

used. Should emergencies occur, eighteen pallets can be shipped by truck with a one$-$day transit

time.

Recently Leola has experienced two major stockouts for its consumer$-$size five pound sacks of

bleached white flour. One of these was due to problems in milling operations; the other occurred

when marketing initiated a "buy one, get one free" coupon promotion. Since these events,

planning has become overly cautious and err on the side of having excess inventories at the DCs$.$

Additionally, two other events have affected DC throughput: $(1)$ implementation of direct factory

shipments for replenishing the five largest supermarket chains, and $(2)$ a price increase making

Leola flour more expensive than its national brand competitors, such as Pillsbury or Gold Medal.

Current Situation

Of the $1,500$ pallets in the Pittsfield DC$,$ Leola shows only $396$ pallets for open orders. This has

led the company to use outside overflow storage, where there are another $480$ pallets. Flour is

easily damaged; hence, Leola prefers to minimize handling. Overstocking at the DC alone costs

$$1\mathrm{.}85$ per pallet for outside storage, to which must be added $$4\mathrm{.}25$ per pallet for extra handling

and $$225$ per truckload for transportation. Similar scenarios are being played out at the other

DCs as well.

Possible Solutions

Jennifer Roberts has been contemplating various approaches to solving the inventory issue.

Clearly, product needs to be in place at the time a consumer is making a buying decision, but

Leola cannot tolerate the overstocking situation and the stress that it is putting on facilities and

cash flow.

Jennifer's first thought is that a better information system is needed, one that not only provides

timely and accurate information but also extensively shares that information throughout the

organization. Several questions immediately come to her mind; however, she needs additional

information prior to coming to any solution.

Case Questions

$1.$ What role might the DCs play in developing useful forecasts?

$2.$ Could a postponement strategy work for Leola?

$3.$ Organizationally, might inventory control be more effective if reporting occurred

elsewhere in the firm?

$4.$ To assure future effectiveness of any approach, a cross$-$functional team should be

considered, who should be included and why?

$5.$ What additional solutions do you propose? Why?

$6.$ What performance measures would you use to measure progress toward goals if you were

Jennifer?