Identify Warehouse and Distribution implications, think about the warehouse network, # required, associated costs, rational for location choice, available distribution modes, last mile delivery solutions, and other factors as appropriate.

Use the numbers provided in the case so you have some guidelines as to how much you have to spend on this endeavor. I want you to be as financially reasonable with your plan as you can.

You are the owner of a rather successful widget manufacturer that sells its products through a variety of roughly 1800 select retail distribution points throughout the US. Your products are well regarded by consumers and to maintain that perception of uniqueness, you have decided to retain some control over those distribution points (basically, you are saying that you dont want your products available in every single retail outlet). You have been in business for over 20 years and while it has varied over time, you have recorded a net increase in gross sales AND operating profit in each of those 20 years. The last 5 years have seen an average growth rate of 7.5% in both sales and operating profit. Sales for the most recent fiscal year were $875 mm. Your net profit after accounting for all operating expenses, taxes, a 3.5% dividend payable to both you and your partner, etc. is roughly 4% which you can use to reinvest in the company or take as additional profit. You recognize the importance of maintaining the core competencies which have made your company so successful so you regularly reinvest that profit back into your company. When you first started your business 20 years ago, you were relatively conservative with growth and expansion plans. Due to some creative discoveries from within your R&D department you were able to develop and introduce some unique options to your widget, all of which are patent protected. You saw the opportunity to leverage that discovery and greatly expand both your manufacturing, distribution and retail foot print. That expansion plan however required a great deal of cash (well north of $50 mm) ...... cash you didnt have at the time. This was in 2008 and due to the financial crisis, banks were hesitant to

loan you money and while taking your company public was an option, the equity market wasnt that attractive and you were very hesitant to give up control of your company. You opted to sell a 35% stake in your company to a private equity firm in order to raise the needed capital. While you had some initial apprehension, the partnership with this firm has worked out quite well and you are pleased with the relationship. You meet with them face to face semi-annually and your CFO sends them financial updates quarterly. The relationship as stated has been solid, they pretty much leave you alone, then again, you have consistently delivered against all of your sales and profit objectives (trust me, when sales are good, life is good). Over the course of this relationship, you have selectively approached your partner when you felt there was a necessary business case that required a cash investment that was above and beyond what was available from the annual 4%. You and your team were always able to present a sound business plan and financial justification for the added investment. The one thing you and your partner did insist on was that any incremental cash investment in the business (meaning pulling forward the anticipated 4% from future years) must return a positive ROI within 3.5 years. Annually, the senior leaders within your organization spend one weekend per year on an executive retreat where you review and update your strategic business plan. Here you chart the course for the next 5 to 10 year period and discuss potential threats and opportunities that you may face and alternative responses. The last few years, one topic of discussion has been the changing retail landscape and the impact that E commerce is having on consumers purchasing habits. The recent Covid pandemic has only heightened that situation with many of your select retail establishments being forced to close, as a result, your 2nd quarter sales slumped 22% over the same quarter LY. You are confident in the long term viability of your product but you are concerned that several of your retail partners do not have the financial strength to emerge from this pandemic without significant reductions in store locations. You currently have a relatively small online presence, in fact it is mainly used for customer service and replacement parts. In order to protect the relationship with your select retail partners, you have hesitated to compete directly with them. In exchange for this, your retail partners agree to specific merchandising and placement standards set by you. You and your executive management team are concerned that this pandemic has greatly accelerated the consumer shift to online purchasing and whether you should aggressively introduce an online direct to consumer option. A second topic that consumed a great deal of discussion during your strategic planning retreat was the recent discovery from your engineering and R&D department on how to quickly and easily manufacture custom designed widgets (you have patents pending on this process). Prior to discovering and perfecting this manufacturing process, your company manufactured and offered a relatively small number of widgets (roughly 50 skus). Most of your retail partners carried between 20 and 25 skus and you were able to manufacturer some items emphasizing

regional preferences. While this manufacturing enhancement is a potential boom to sales, it will pose a myriad of logistical and supply chain challenges that would need to be addressed. Your corporate headquarters are located in Austin TX and all key corporate functions originate from this location including R&D. Adjacent to the corporate office is a state of the art miniature manufacturing facility where your team could experiment with new products and designs before implementing them into your large scale operation. This is where the customization enhancement was discovered and perfected. All of your production originates from one of two manufacturing facilities both located in Mexico (Monterrey and Torreon), once goods are manufactured, they were shipped to your single finished goods warehouse located in Saltillo Mexico. For production efficiencies, each plant produces different products, however, both plants were designed so that they could quickly convert processes and produce any sku that you offer. Once an order is received from a customer (at your corporate office), it is processed and electronically sent to Saltillo for picking, staging and finally shipment. Order minimums from your retail customers are $400 or 100 lbs. From your Saltillo facility, orders are queued until you have a minimum of 5 pallets per US shipping region of which there are 6. Average lead time between receipt of order and customer receipt of product is 2 weeks. While there may be opportunities to reduce this lead time, you have found this to be the most cost efficient method. Also, your fill rate is relatively high at 98.9%. So, while your customers may need to wait 2 weeks, they are confident that what they order will arrive complete. Your product does experience an increase in sales for the Xmas holiday season, but is generally not considered a seasonal product and enjoys relatively stable demand from month to month. After significant internal discussions with both your leadership team and your private equity partners you have made two major decisions: FIRST: you have decided to transform your distribution mode from select retail outlets to one that offers and in fact emphasizes a direct to customer E commerce platform. You realize that this may upset some loyal retail partners and that several accounts may in fact discontinue offering your products ........ your longer term plan is to exit the brick and mortar retail operation completely by 2024. SECOND: you have decided to aggressively promote the widget customization option made available by your manufacturing enhancements. These two decisions may have significant impacts on how your supply chain network is designed. No longer will you be shipping to defined locations with $400 minimum orders, demand planning and forecasting will become exponentially more challenging, custom orders may greatly increase sku counts, part and material complexity and a host of other challenges you will need to consider. As the senior supply chain leadership team, you have been tasked with designing the warehouse and distribution network needed to be in place to support these two main initiatives keeping in mind your guidelines for additional capital investment. As the senior

leadership team finished outlining this challenge to you they reminded you that much of the firms current success was due to the fact that they exercised a great deal of control on their manufacturing and operations network. This was influenced in large part by the owners formal educational background in Operations Management (the pre-cursor to Supply Chain). If this new business strategy is to be successful, the senior leadership team feel it is imperative that this new warehouse & distribution network is not simply put into the hands of a 3PL, but is designed, created and managed internally.