Business Case Paper and Presentation/RFP (including evaluation matrix) ABC Company Develop a convincing proposal to upper management to outsource some function or activity of the ABC Company. Be sure to include all the benefits and risks associated with your recommended changes. You may include cost implications. You may define before and after costs based on you own experience or research. If you do include cost data, it must be realistic to the degree you can determine. Develop a Request For Proposal (RFP) for submission to a potential third-party logistic service provider (3PL). Include all the relevant logistics data that the 3PL will need to provide a transaction-based quote. In addition, include your requirements for selection of a 3PL partner. Develop an evaluation matrix for comparing the responses from each 3PL. Submittals: Business Case Presentation (PowerPoint), RFP and paper 6 - 8 pages, 12pt (Calibir or similar), Single spaced Presentations should be 15- 20 minutes. Everyone on the team must present Audience is Senior Management making a Go/No Go decision Should address all major issues in the business case Make sure the names of all team members appear on the presentation. Remember that your grade for this course will rely on your grasp of Outsourcing methodologies and logic, not on your PowerPoint presentation skills or public speaking acumen. Submissions (including peer evaluation) will need to be posted SCM 512 Outsourcing Decisions ABC Company Group Project Profile General Background: The ABC Company was founded in 1955. It is located on the East coast in the Boston area. It is privately held and has an excellent reputation in the community. It is one of the major employers and has a mature labor force. The company had grown on an average of 5-10% since the early 1990s. A corporate philosophy that directs management decisions has typically focused on price, quality and product availability as the major elements of their business strategy. The latest revision to the Corporate Mission Statement is that ABC will provide all its customers with the highest quality and most cost competitive prices, while maintaining the highest standards in product design, concern for the environment, safety for our workers and profitability for our stockholders. While clearly implied by the Mission Statement, senior management has traditionally viewed the logistics (supply chain) processes as a cost rather than a service function. Products: The Company manufactures kitchen appliances, specifically refrigerators and dishwashers. Both the refrigerators and the dishwashers have a number of options the customer specifies when they order. In an effort to provide flexibility, the main manufacturing process was redesigned several years ago to allow the options to be configured at locations other than the plant if desired. The manufacturing of appliances with specific options is scheduled from forecasts that are based on historical sales data. Most of the parts, except for the non-metal forming, are bought from sixty outside suppliers. Typically, it takes 10 days to complete an appliance from placement of order to ready ship from the finished goods warehouse. Orders to the plant and orders/shipping information to RDC are faxed. All orders are entered into an in-house system that was developed some 5 years ago. There are approximately 225 different SKUs for the finished products based on the different options available for the refrigerators and dishwashers. Shipments are scheduled based on replenishment demand at the regional distribution centers (4). The options for refrigerators are as follows: Side(s) Color Door Color Door Hinge (left or right) Icemaker Shelf Configuration The options for dishwashers are as follows: Front Color Internal Water Heater Dish Rack Configuration In addition to the manufacturing of appliances, the Company sells and distributes repair parts for its own products as well as other manufactures appliances. Current Facilities: ABC performs all its manufacturing in a single 350,000 square foot, single story company-owned building. Finished products are stored in a 50,000 square foot section of the main building. The area currently designated as the Main Appliance Warehouse is approximately 35 years old. The space could easily be converted to manufacturing if necessary. All products are moved to the Main Appliance Warehouse utilizing forklifts with special clamp attachments. The forklift can handle either one refrigerator (1) or two dishwashers (2) at one time. All products are stored in bulk and stacked 3 (refrigerators) to 4 (dishwashers) units high. Currently, the Main Appliance Warehouse is operating at about an 80% capacity. Over the last several years, the ABC Company has consistently met or exceeded it goal of 95% of orders ready to ship within the 10 days. The parts are distributed out of a separate 30,000 square foot leased building located about a block from the manufacturing plant. The building is on a 7 year lease which is in the 4th year. All 8,000 SKUs are stored either in racks or shelving units. The operation could generally be described as split case pick pack operation. The majority of the material handling within this facility is accomplished with non-powered roller conveyors. The repair parts DC is operating currently at about 95% capacity. Transportation: There are 6 company owned power units that are driven by 5 dedicated drivers. The drivers seniority averages about 12 years with very little turnover. One truck is rotated for preventive maintenance. In addition to the drivers, there is one maintenance and repair employee on site that works on the trucks. The tractors average age is 3.4 years and each travels slightly over 100,000 miles per year. There are 18 - 53 dry van trailers (no special equipment) in the current fleet operation. Twelve (12) of these trailers are owned and six (6) leased. The reason for the 3:1 trailer to tractor ratio has been the result of the drop and pull nature of the private fleet operation. From time to time, the trailers are utilized for temporary storage at the various facilities. The company-owned trailers range in age from 1-5 years. All six trailer leases are done at the end of December 2010. The fleet cost per mile (over the last several years) to all locations has been very competitive with for-hire common carriers at about $1.25 per mile. The general cost (on a per mile basis) includes; General Administrative .11, drivers, .64 and equipment is .50. Dry Van Fleet/General Commodity benchmark figures (nationally) have been about $1.28 per mile. The fleet has a satisfactory DOT safety rating as is not due for another audit for several years. The DOT accidents per million miles is 1.0. The transportation supervisor (fleet manager) reports directly to the Main Appliance Warehouse manager. All fleet expenses and for-hire freight bills are approved by the transportation supervisor and forwarded to accounting to be paid in-house. There are approximately 30-50 bills to be audited and paid per week. The average cost has been estimated to be about $6.25 per bill. Labor: There are 175 employees dedicated to manufacturing and administrative operations. The finished products warehouse has 6 employees consisting of one supervisor and 5 warehousemen/fork lift drivers (2 shipper/receivers and 3 order selectors). The finished product warehouse jobs are entry-level jobs. Most new hires start in the main warehouse at $12.00 per hour and bid for higher paying manufacturing jobs on an availability and seniority basis. The parts distribution operations have 7 dedicated employees; one supervisor and 6 warehousemen/fork lift drivers (2 shipper/receivers, 2 pickers and 2 packers). The parts warehouse jobs are senior level jobs and average about $18.00 per hour. Manufacturing employees can bid, based on seniority, to work in the parts distribution warehouse. As a result, the resulting wages are some of the highest in the company. Both facilities are staffed with dedicated full time employees. A local union represents all manufacturing and warehouse employees. Relations with management are good, but the union has pressed for higher wages and the resulting workforce has a higher wage rate for the surrounding area. The next contract is due in February 2011. The average unemployment rate in the area is slightly over 4%. Distribution Network Statistics: Main Appliance Warehouse All finished goods are shipped FOB Destination, Freight Prepaid. The order cycle time within the main appliance warehouse is 2 to 3 days. The Company maintains its own dedicated trucking fleet for the delivery of its products to each of four regional distribution centers or utilize for-hire common carriers when necessary. Truckload shipments go out on average of 1-3 times per week per RDC. Demand for all locations is similar. All products are floor loaded with approximately 30-36 appliances being loaded per trailer. There are no drop shipments directly from the factory to customers. The fleet has averaged a 97% on time delivery with a 1% damage rate. On the other hand, the common carriers utilized in the past year have had a bit better with service 99% but a 2% damage rate. When possible, the private fleet backhauls products from the various suppliers near the RDCs. While it has helped, there still is a 55% empty backhaul ratio. There has never been any thought giving to the idea of obtaining supplemental for-hire authority since service is important to the company. Parts Distribution Center The order cycle time (time from order placement to delivery) in the parts warehouse is 4 to 5 days. Almost all the parts are shipped via UPS or FedEx. Order selection is done with paper orders that are printed on a dedicated printer in the distribution center. The printer is connected to the main office via a wide area network (WAN). Regional Distribution Centers: Appliances are shipped from the main warehouse to the individual regional distributions centers. The centers are located on the West coast (LA), the Midwest (Chicago), the South (Dallas) and the South East (Atlanta). The warehouses cover exclusive territories which typically include the surrounding 7 or 8 states. Shipments to Alaska and Hawaii are handled from the LA facility. All regional distribution centers are 3PL warehouse service providers. Contracts are written for the 3PL to provide receiving, storage, order selection and shipping of products. The term of each contract is the standard 30-day Public Warehouse Agreement. Since these are large public warehouses, there is adequate room for any expansion necessary by the company. Charges are for handling, storage and miscellaneous shipping documentation. Appliances with each of the different options installed are stored at every warehouse based on sales forecasts for each region. As product is shipped and inventory reaches the reorder points, the Company schedules a replenishment shipment to the respective warehouse for the following week. Transportation from the RDCs to the customers is done using a fleet of lift gate trucks. While ABC is paying the freight charges, this portion of the delivery process is arranged through the 3PL at the various different sites throughout the US. The order cycle time (receipt of order to ready ship) is typically 48 hours. Overall, the RDCs have reached that goal 98% of the time. The on-time delivery from the RDC to the customers has averaged about 95% over the last 12 months. Information Technology The company has a local area network with a Windows NT server. All the workstations have Windows 2000 software with Microsoft Office, including Word, Excel and Access. The order processing and inventory control applications are run on the Access database. All forecasting and data analysis is done with MS Excel. All interfaces with customers and warehouses are via mail, e-mail or FAX. Market: The Company sells appliances to both new construction builders and large retail stores. Their product is considered to be of high quality and is priced on the high side (still competitive) of the market. The largest percentage of sales (70%) is sold to the new construction market. Deliveries are made directly to the construction site. In summer, the volume of sales to this market is considerably higher than in the other seasons. There is a small sales increase to the retail stores during December. Repair parts have a generally constant demand. Future Strategic Issues: In the last few years, the Company sales are growing at a rate of 20% per year. They are starting to reach the maximum capacity of their manufacturing facilities. In the near future, they will need more manufacturing space to keep up with the growth. Thus, senior management is taking a very close look at freeing up capital for such items as expansion of the current manufacturing facility and related activities. While there are no new products scheduled for release in the next several years, the firm is always researching new kitchen oriented ideas or designs. One such product is a refrigerator with a microwave option in the freezer section. In addition, many of their existing and new customers are requesting the ability to place orders via the Internet. In addition, they would like to get order shipment confirmation and inventory availability via the Internet. The Company does not have these capabilities at this time but this type of B2B E-Commerce will be a critical element of any future competitive strategy. ABC Company Statistics ABC Company Example Product Activity Analysis ITEM Program Characteristics (averages) Estimated Avg. Annual Activity A Inventory Turns per year 6.0 B SKU in inventory 12,000.0 C Receiving Containers (Product A-D) @ 12/month @ 10 plts 144.0 D Receiving Containers (E-Z) @ 12/month @ 22 plts 144.0 E Pallets per container 16.0 F Receiving pallets 4,608.0 G Cartons per pallet 72.0 H Receiving Cartons 331,776.0 I Receiving PO's 1,200.0 J Receiving SKU per PO 25.0 K Receiving SKU 30,000.0 L Batch transmissions per year 250.0 M Orders per year 5,376.0 N Cartons shipped per order 61.7 O Lines (SKU) per order 65.0 P Picks (pieces or cartons) per order-line 2.5 Q Cartons - total shipped 331,776.0 R Lines (SKU) total shipped 349,440.0 S Picks (pieces or cartons) total shipped 873,600.0 T UPS orders 3,225.6 U UPS orders cartons manifested 199,065.6 V UPS pallets loaded 2,764.8 W LTL orders 2,150.4 X LTL cartons 132,710.4 Y LTL pallets 2,654.2 Turns SKU Containers + Containers = 288.0 pallets pallets cartons cartons PO's SKU/PO SKU total transmissions orders ship cartons cartons 100% SKU picks cartons SKU Picks UPS orders 60% UPS cartons UPS pallets LTL orders 40% LTL cartons ctns/pallet out LTL pallets 50