I. Current Situation and Problem
Wonderful Widgets is in the business of producing widgets. Widgets are its sole product and primary source of income. It provides its widgets to a customer base that is located both within the United States and abroad. When customers complete a purchase of widgets; Wonderful Widgets will ship the order, as needed, from one of its warehouses which are located in several locations across the country. Recently, however, Wonderful Widgets was encountered a number of issues that has significantly affected its revenue. Specifically, it has suffered from lower sales due to customer dissatisfaction, raised costs, and increased variability. Task is to consider and recommend a better distribution strategy that will lower costs, decrease variability and raise customer satisfaction, thereby resulting increase revenue.
II. Options
Based the current circumstances of Wonderful Widgets, there are three options for distribution strategy, namely transshipment, cross-docking, and centralized management. Transshipment refers to the distribution strategy in which product shipment are delivered to customers in several steps. For example, a shipment will be sent to an intermediate point before being shipped to the customer. Transshipment is often used when large shipments need to be separated into smaller, or combined into bigger, shipments before being sent to the end-user. An advantage of transshipment is that it can allow the movement of good from a warehouse with excess inventory to one that has insufficient inventory to satisfy demand (Dong & Rudi, 2004). It is also efficient where there is a large diversity of products being shipped. The result is a decrease in costs for excessive inventory while also increasing customer satisfaction by delaying shipping times. The disadvantage of transshipment is that it requires prior knowledge of where demand will be high.
Cross-docking refers to a distribution strategy which emphasizes the immediate movement of product from suppliers to customers without or less of the need to store the product in a warehouse (Kulwiec, 2004). With cross-docking, the product basically goes from the receiving trucks to the shipping trucks to the customer without the need for a warehouse. The benefits of cross-docking as a distribution strategy is that if reduces the costs needed for a warehouse as well as the any damages or issues that can occur as a result of warehousing products such as decay, loss or excessive inventory. The disadvantages of cross-docking are that it requires a significantly sophisticated logistics system including coordination and information-sharing of product shipments, transport, and customer receiving.
Centralized management refers to the distribution strategy where a central location makes the decision of which warehouse will ship the product to a customer. The decision on which warehouse will ship normally is based on their location relative to the customer, inventory supply and shipping costs (Sahay & Ierapetritou, 2013). Some advantages of centralized management include the reduction of costs of ineffective shipping decisions, the optimization of the complete warehouse network, and higher customer satisfaction based on lower shipping costs. Some disadvantages to centralized management include loss of local warehouse authority, increased shipping times in some cases.
III. Recommendations
Based on Wonderful Widgets circumstances, namely a country-wide warehouse network and a global customer base; the recommended distribution strategy should be centralized management. This would allow it to take advantage of what it already has, namely its warehouse network and optimize it to satisfy customers that are closest to the warehouse. This would save on shipping costs, optimize its supply chain, decrease variability and increase customer satisfaction.
IV. Question and Answers
1. The most challenging point about completing the scenario was trying to understand what the actual demands for the warehouse manager were to be achieved.
2. The additional information would have made it easier to focus in on what exactly the warehouse manager procedure in developing a recommendation for a distribution strategy should have been.
References
Dong, L. & Rudi, N. (2004, May 5). Who benefits from transshipment? Exogenous vs. endogenous wholesale prices. http://facuty.insead.edu/rudi/personal/documents/mnsc.1040.0203_000.pdf
Kulwiec, R. (2004). Crossdocking as a supply chain strategy. Retrieved from http://www.ame.org/sites/default/files/target_articles/04-20-3-Crossdocking.pdf
Sahay, N. & Ierapetritou, M. (2013, Nov. 6). Centralized vs. decentralized supply chain management optimization. Retrieved from https://aiche.confex.com/aiche/2013/webprogram/Paper319958.html
