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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 higher fulfillment 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 notifications (ASN), RFID tags on all products, and improved inventory visibility. Gone are the days when 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 PFCs 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 companys centralized DC that sits next to the factory in Oshawa, Ontario. And all of these new requirements are accompanied by shorter order cycle times and goals. Himmer feels that he is stuck between a rock and a hard place as the major home improvement chain stores (Home Depot, Lowes, and Home Hardware) account for more than 80% of PF s sales. Although compliance is proving to be very expensive PFC cannot afford to deny any requests. Doing so would have unwelcome effect on revenues. After consulting with his fulfillment team, Himmer has to come to the conclusion that he has three reasonable options to address the emerging marketplace requirements.

Option 1 Upgrade the existing PFC DC in Oshawa to handle multiple order types and smaller shipments. Deploy warehouse automation to improve order fulfillment speed and efficiency.

Option 2 Expand the PCF fulfillment network. Add regional DCs in Edmonton, Alberta and St. John, New Brunswick. Modify operational processes and flows so that orders for DCs, stores, and individual consumers can be fulfilled.

Option 3 Outsource fulfillment to a capable third-party logistics company so that PFC can focus it efforts on quality production, accurate demand planning, and lean inventory management.

Himmers 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 recommendations.

Case Questions

Question 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?

Question 2 Compare and contrast the three options from the perspective of cost. Which one do you believe will provide the most economical solutions for PFC? Why?

Question 3 What types of functional and cost trade offs will Himmer need to analyze?

Question 4 Which distribution option do you feel gives PFC the best opportunity for future success? Why?