In 1984, NZ All Natural Ice Cream (NAN) began as a small shop in Christchurch, the largest city in the South Island of New Zealand. As NAN’s sales volume has increased significantly over the years, it continues to diversify its product range to include nondairy, low-fat sorbets; low-fat frozen yogurts; and premium ice cream in a wide range of flavors.
Waikato, which is the heartland of various free-range dairy farms a prominent, is NAN’s primary fresh milk and cream supplier. NAN now wants to set up its own production plants in Auckland, which is in the North Island of New Zealand and geographically closer to Waikato, so that the manufacturing process could be smoother and more secure.
Currently, NAN operates three plants and five distribution centers across the country. The plants generally manufacture the base products,
and the distribution centers produce hundreds of end products that fit customer specifications.

Supply Chain Improvements at NAN 

To further expand its domestic market, NAN is considering providing consignment inventory to customers in the North Island first and implementing this strategy throughout the country if it proved effective in the North Island. It plans to keep the ice cream products required by customers in the North Island on consignment at the customers’ sites and replenish regularly to ensure sufficient supply. According to previous sales data, the consumption of ice cream by customers tends to be stable. NAN owns the consignment inventories and gets paid once sales are made. NAN has assigned its inland replenishment function to a 3PL company named SuperTruck through open bidding. SuperTruck is famous for its fast response and prompt delivery through expertise in fleet management. All its trucks have refrigerated units built either directly on the frame or transported by trailer and are powered by diesel-operated generators. SuperTruck is instructed to fulfill every order NAN places within 24 hours or reimburse NAN for all damages if it fails to do so. Each truck has a capacity of 40,000 liters, and SuperTruck has been contracted to charge a fixed flat rate given the origin and destination regardless of the quantity loaded. NAN usually sends full truckloads (TL) to each customer to replenish its consignment inventory. Katy Leung has recently been employed by NAN as North Island regional supply chain manager to oversee logistics operations in the region. Katy is responsible for inventory as well as transportation costs and decides to review the current operations for possible cost savings. In particular, Katy wonders if NAN should include multiple shipments for different customers on a single truckload. The table shows the customer profile in Wellington, one of NAN’s distribution centers.

Delivering with SuperTruck 

SuperTruck charges $400 for each truckload from the Wellington DC to each customer based on NAN’s policy to send a full truckload as needed. In response to Katy’s recent enquiry, SuperTruck indicated that it would charge $350 per truck plus $50 for each drop-off location. That is, if a truck made only one delivery as existing practice, the total charge would be $350 + $50 = $400. However, if it makes three extra deliveries (four locations in all), the total charge would then be $350 + $200 = $550. Each liter of ice cream product in consignment costs NAN $1, while the holding cost is maintained at 25 percent. Consider
the different distribution possibilities in the Wellington example and recommend the best option. This will help shape the future marketing and distribution strategy that NAN plans to roll out throughout New Zealand.

Questions
1. Calculate the annual cost of NAN’s strategy of sending only full truckloads to each customer in Wellington to replenish consignment inventory.
2. Evaluate the costs for different delivery options and recommend the best option that NAN should implement.
3. How does your recommendation affect NAN’s consignment inventory?