LeanCor’s Supply Chain Case Study
Q1.
A consumer product company has a number of standard logistics operational characteristics. The main characteristics considered in the LeanCor case study include high inventory availability, constant flexibility during customer order processing and speedy deliveries from distribution points to the customer. These three characteristics all relate to improved customer service which is the main target for consumer product companies. More inventory availability means that there is no occasion that a consumer will require a product and find it out of stock. Inventory availability in the warehouses and distribution points is a key practice to ensure that customers get the product they require whenever they need it. In order to ensure more inventory availability, the company must consider several operational aspects of distribution and warehousing, including bulk storage, stock replenishment and stock updates (Khabbazi, Hasan, Shapi’i, Sulaiman, & Taei-Zadeh, 2013). Smart bulk storage assists companies to take full advantage of the available space in the warehouses and ensuring efficiency in having more inventory availability. Regular stock replenishment is also vital in guaranteeing that the warehouses are stocked at all times. Stock updates help the logistical department to understand the stock movement and increase inventory availability whenever required. The second characteristic is 24/7 flexibility during order processing. Such guarantee can only be achieved through effectively automated order processing from customers such that they can order from anywhere at any time, and that the company receives the orders as they are made regardless of the time of order taking. Such flexibility requires efficiency in operational aspects of the company in terms of personnel availability, time of order picking and time of order entry (Khabbazi et al., 2013). The third characteristic of a consumer company is speedy deliveries from distribution points to the customer. Speedy deliveries means that a consumer can access a product the same day or a day after the order is made. This can only be achieved through effective documentation completion, vehicle/fleet management and load scheduling (Khabbazi et al., 2013).
Q2.
In the LeanCor’s case study, the specific area of logistics considered is the customers’ outbound distribution network. Outbound logistics refer to the process through which the final product from a company is stored and distributed. The outbound distribution network is vital for a consumer product company since it impacts highly on customer satisfaction. The most important factors to consider when dealing with this area of logistics is how to rapidly react to any market changes and ensure reliability and efficiency throughout the supply chain. According to the case study, LeanCor identified two problem areas of the consumer product company. The first problem was that the customer distribution network was significantly overlapping while the second problem was that there were as many as 64 distribution locations. The customer distribution network overlap caused significant issues to the company as the customer service levels were going down. Customers were highly dissatisfied due to less inventory availability, lack of consistent flexibility during order processing and untimely delivery of the final product to the customers. The high number of distribution locations meant that the customer was struggling with high fixed costs and they were having less opportunity of consolidating shipments, both inbound, and outbound. In logistical operations, companies must devise the most appropriate ways of reducing costs and enhancing inventory availability. The above logistical problems identified by LeanCor require full logistical network analysis and eventual implementation of appropriate measures.
Q3.
LeanCor considered five target areas of improvement. The first target area was to achieve reduced inventory and inventory costs. Inventory costs are considered a serious issue within the supply chain management because they directly affect profitability and sustainability of a company (Mehfooz, Muhammad, & Faisal, 2012). When the fixed costs of inventory are high the company is negatively affected on its profitability since most of the funds go to inventory issues. This may lead to less sustainability of the business. The second target area is a reduction of fleet costs. Fleet costs are directly affected by the number of vehicles and personnel required for successful distribution of products to warehouses and to final delivery points (Mehfooz, Muhammad, & Faisal, 2012). When fleet costs are high, the sales costs go up thereby reducing the profitability of a business. This means that logistics department should focus on how to reduce the fleet expenses and realize more profits for the company. The third area of improvement is improved inventory availability. Inventory availability is crucial in realizing high customer satisfaction. It means that customers can get a product whenever they need it thus ensuring the company is able to get and retain loyal customers due to high customer service levels (Mehfooz, Muhammad, & Faisal, 2012). The fourth improvement area is to get a right-sized number of distribution centers. The company was operating with 61 distribution points which is a significantly high number of warehouses. With such number of distribution points, the company spends a lot on fixed costs of owning and maintaining the facilities. This high number of distribution points further decreases the amount of profits realized by the business because the expenditure is constantly high (Mehfooz, Muhammad, & Faisal, 2012). The logistics department must devise a plan to reduce the number of redundant distribution points and warehouses so as to cut costs and realize more profits. The fifth and final improvement area as identified by LeanCor is an improved inventory replenishment method. Stock replenishment should be done sufficiently and effectively to avoid overstocking or under-stocking within the warehouses. Under-stocking may lead to poor customer satisfaction levels while overstocking may lead to damaged or stale products. The logistical department must find a way that the stock is updated and enough is transferred to warehouses and distribution centers depending on the need of customers. The lean technique can work for this consumer product company. The technique aims at reducing costs and ensuring waste is lowered as much as possible (Mehfooz, Muhammad, & Faisal, 2012). This company wants to reduce costs and replenish the warehouses effectively and therefore lean technique can highly assist them. The agile technique is mostly used for companies that want to quickly adapt to changes in the business situation (Mehfooz, Muhammad, & Faisal, 2012). It helps to adapt to changes such as the economy, technological or demand shifts. This technique is not appropriate for this company because the problems identified are not about changes in the business environment; they are about high costs and inventory issues.
Q4.
The consultant (LeanCor) decided to reduce the number of warehouses to minimize fixed costs for the company. The implications of such reduction meant that there would be some risks in the logistics chain. The main risk would be that some customers would be affected especially those who were living close to the closed distribution points (Choy, Sheng, Lam, Lai, Chow & Ho, 2014). Even though not many customers would be affected by the closure, the few who will be directly affected are still a risk to the business. For instance, some will find the nearest distribution point to be further than what they were sued for and they might forego the product. The other risk is stock inventory in the warehouses that will be used to stock the products that were being stored in the closed-down warehouses. The stock might become too high or too low depending on the available number of new customers for each distribution channel (Choy et al., 2014). These are the two main risks that the reduction in a number of warehouses will have on the business.
References
Choy, K., Sheng, N., Lam, H., Lai, I. K., Chow, K., & Ho, G. (2014). Assess the effects of different operations policies on warehousing reliability. International Journal Of Production Research, 52(3), 662-678. doi:10.1080/00207543.2013.827807
Khabbazi, M. A., HASAN, M. A., SHAPI’I, A. A., SULAIMAN, R. A., & TAEI-ZADEH, A. A. (2013). Inventory System and Functionality Evaluation for Production Logistics. Journal Of Theoretical And Applied Information Technology, 377.
Mehfooz, A., Muhammad, A., & Faisal Hassan, U. K. (2012). Inventory Management and Its Effects on Customer Satisfaction.Oeconomics Of Knowledge, (3), 11.
