Vanity Products

Case Study $8-1$

John Vance, president of vanity products $($VP$),$ is reading the latest financial results reported in the company newsletter. Every time he reads this year's financials, he recalls the company's earliest days in the struggles to get retailers to stock his new line of bathroom vanities, mirrors, in light fixtures. Today, the company is restraining to produce enough product to meet retailer demands.

vanity products manufacturers of variety of bathroom accessories, including vanities $($medicine chest$),$ 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 a high$-$quality bathroom accessory at an affordable price.

in the middle $1990$s$,$ John focusses the company's marketing attention on the large home center chain stores: Home Depot, Walmart, sears, and so on$.$ Today, more than $80\%$ of VP sales are to these retail chains and they account for $95\%$ of their 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 qualified to install EDI software that permits the buyers to assess VPS inventory data file to determine availability, to place orders and to verify shipment status. The latest demand for 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 store.

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 $5$ 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 pedal runs. John liked the idea of keeping freight calls 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 in 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.

Tom is working on an idea to establish a series of distribution warehouses in the market area where the chain stores are located. Tom's vision includes truckload shipments from the plant to the distribution centers, 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, Ian transportation costs. He is not even certain it would meet the delivery time requirements.

Questions to answer

$1.$ What is your opinion of Tom White's proposal for establishing a series of distribution warehouses?

a$.$ Analyze the logistic service and cost constraints imposed on VP by the chain store's latest demand