Gordon Sumner, chief executive officer of Pain Away Corporation (PAC), is feeling stressed out. The producer of transcutaneous electrical nerve stimulation (TENS) unit, a battery-operated device that people use to treat pain, is faced with a new opportunity but Sumner is not sure how to approach it. The Food and Drug Administration has changed the rules and low current TENS units can be sold directly to consumers, starting in three months. Previously, they required a medical prescription for short-term use and could be rented from medical device companies.

The market potential is huge thanks to the aging U.S. population. PAC could sell through national drugstore chains, pharmacies, and Amazon, but Sumner has some reservations. His past experience as chief supply chain officer for a power tools manufacturer has him remembering all the fulfillment issues when dealing with large retailers. He recalls retailers wanting small, frequent shipments to a larger number of locations with faster and faster service, advanced shipping notification, and RFID tags on all products for inventory visibility. Of course, the retailers want to buy products at a wholesale price and sell them at a healthy mark up.

Sumner wants to avoid those headaches and protect PAC's profit margins. He believes the consumer market will best be served through an e-Commerce direct sales model. PAC will require an easy-to-use consumer Web site, a strong marketing campaign, and excellent fulfillment capabilities if he is to compete effectively with the global TENS manufacturers that will flock to Amazon for rapid market access.

PAC has started production of three consumer TENS models at the company's factory outside Louisville, Kentucky. The inventory is being held in the PAC distribution center (DC) next to the factory, awaiting their release date. The DC currently fills orders for medical device companies and Sumner thinks that consumer orders could also be fulfilled there with a bit of effort.

Sumner calls a meeting with his supply chain leadership team about pursuing the e-Commerce method and to get their recommendations regarding fulfillment. All are in agreement that direct-to-consumer is the way to go. After some brainstorming, the team identified three reasonable options to serve the U.S. market:

Option 1Upgrade the existing PAC DC in Kentucky to handle both consumer orders and medical device company orders.

Option 2Expand the PAC fulfillment network. Establish regional DCs in Reno, Nevada and Columbus, Ohio to complement the existing Kentucky DC.

Option 3Outsource fulfillment to a capable 3PL company. This would allow PAC to focus on production, demand planning, and marketing.

Sumner's next step is to fully evaluate the three options and choose a path forward before his upcoming meeting with PAC's board of directors. They will ask tough questions and Sumner must be confident in his recommendation.

Case Questions Compare and contrast the three options from the perspective of customer service. Which do you believe will provide the best level of service? Why?

Compare and contrast the three options from the perspective of cost. Which one do you believe will provide the most economical solution for PAC? Why?

What types of functional and cost trade-offs will Sumner need to analyze?

Which distribution option do you feel gives PAC the best opportunity for future success? Why?

How should PAC leverage automation for its consumer fulfillment processes?