Dean Pallotta was president and CEO of a medium-sized

firm that manufactured highly customized tiny homes (Mini)

in Toledo, Ohio. The firm had expanded from a local Midwest

market to a national one, including Southern California

and New England. As markets had expanded, so too had

sources of supply for the company, with major suppliers of

key building components located in Southern California,

the Pacific Northwest, and Michigan. Additionally, smaller

suppliers of building components were located around the

globe. The decision to manufacture the Mini in Ohio had

been made for two reasons: Dean's former associates in the

auto industry were close by in Detroit, and the largest single

component of the Minithe truck or van chassis on which

the rest of the home is builtwas purchased from one of

the U.S. light-truck makers with a plant in Michigan.

Like others in the field, Dean's company actually

manufactured very few of the building components it used

to manufacture the Mini. Virtually the entire home was assembled

from components sourced from outside vendors.

There was, however, a well-defined order in which the

building components could most efficiently be assembled.

Recently, it had become clear to Dean that warehouse and

inventory costs associated with all of the required building

components were a relatively large portion of his expenses

and that they might be ripe for a substantial reduction. In

particular, he had been considering a decision to invest in a

warehouse management system (WMS) to increase his visibility

of the large amount of inventory in his warehouse

which was located next to his production plant. Transportation

costs were an emerging secondary concern, as

it had become increasingly difficult to plan shipments as

they expanded into new markets and sourced from a larger

number of suppliers. Thus, he was also intrigued about the

potential benefits of implementing a transportation management

system (TMS).

In response to these challenges, Dean had assembled

a cross-functional team to look at some potential

technology-based solutions. The team was made up of

himself, Jason Shea (VP of Logistics), Stephanie Zinger

(Director of Purchasing), Ethan Mathews (Plant Manager),

Jason Paul (Inventory Planner), and Augie Augustson

(Warehouse Manager). Some of the potential benefits the

team had identified for implementing a WMS included:

1. Enhanced productivity for warehouse labor

management

2. Increased visibility and traceability of inventory

3. Fewer picking errors

4. Improved responsiveness to the production plant

5. Less paperwork

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10, no. 1 (2016): 28-32.In terms of the TMS, potential benefits were considered

to be:

1. Increased service to customers, particularly on the

West Coast

2. Potential to pool inbound shipments to reduce costs

3. Potential inventory reductions from more reliable

deliveries

4. Cash flow improvements from enhanced freight

payment

5. Improved warehouse efficiency on inbound

shipments

In addition, several members of the team were

advocating

the idea of implementing both technologies

together

so as to increase the potential to optimize both

areas jointly. The argument was that these technologies

tended to be implemented in silos and that the real value

would be obtained by aligning them in support of overall

company goals.

As they discussed their options, the team also raised

a number of concerns. Dean was very concerned about

the possible issues that might arise as he had previously

worked at a company that had gone through a difficult

ERP implementation. In particular, he had experienced

first-hand the challenges of implementation. So, while the

potential benefits were exciting, the idea of embarking on

a WMS and/or TMS implementation was daunting to the

team. Not only was their apprehension about the significant

capital investment required to purchase the software,

but the potential difficulty in implementing the software

was a major concern. In particular, they worried about the

time it would take and how the employees would react to

the changes.

With regard to their suppliers, Stephanie often had the

opportunity, in the volatile mini-motor-home market, to buy

out parts and component supplies from manufacturers that

were going out of business. Those components could be

obtained at a substantial savings, with the requirement that

inventory in the particular parts be temporarily increased or

that purchases from existing vendors be temporarily curtailed.

She wondered how these opportunities would affect

the potential benefits of the technology investments.

Ethan operated with the (generally tacit) assumption

that there would be some defective components purchased

and that there would likely be something wrong with his

product when it first came off the assembly line. For this reason,

the Minis were extensively tested (Their advertising said,

"We hope you'll never do what we do to your Mini."), as were

the building components prior to installation. To the extent

that only a few of a particular type of component were on

hand or that the lead time became less certain, the interruption

in the production schedule would be that much greater.

It might entail expensive rush orders for replacement components

or equally expensive downtime for the entire plant.

Despite these concerns, Dean was painfully aware

that ignoring the warehousing and transportation problems

would be a mistake. Something had to be done. While

they were currently feeling the strain in the warehouse, the

transportation issues were beginning to be a bigger issue.

As an aid to making the decision on whether to invest in a

WMS and/or a TMS, Dean had worked with the team to

draw up a table that summarized the anticipated impacts

of implementing the technologies (see Exhibit 2.A). The

figures are based on input from the potential technology

providers, forecasts from his marketing department, cost

projections from their IT department, and inputs from

TMS Project WMS Project WMS/TMS Project

Net Benefits $573,000 $245,000 $775,000

NPV $409,938 $172,902 $505,243

ROI 85% 75% 76%

Payback Period (months) 9 11 19

Profitability Index 673% 590% 488%

Upfront Costs $100,000 $50,000 $200,000

Risk Medium Low Very High

Exhibit 2.A Analysis of Potential Technology Projects