In-class Case Study #1 - Tools for Trade

Tools for Trade (TFT) is a Canadian company that sells high-end, specialty tools made to withstand the rigors of everyday use by tradespeople. TFT has been in business for 15 years and enjoys a strong brand recognition and support from the trades. Their head office and main distribution center are located in Calgary, AB.

What sets TFT apart from their competitors is their commitment to innovation. Over the years TFT invested heavily in research and development (R&D) capabilities and secured a number of patents on the design and features of their tools. TFT is also known for a very high quality of their products. TFT tools carry a "Made in Germany" label and come with a 25-year guarantee.

TFT uses a franchise retail model with 120 locations across Western Canada and Ontario. TFT provides its franchisees with sales forecasts specific for each location, arranges for transportation, invest in marketing and advertising of their products, and provides a number of other services required to run a successful retail chain. In addition to their retail locations, TFT entered several partnerships with large industrial firms whom they exclusively supply with their tools. These commercial customers enjoy volume discounts and high level of customer service provided by dedicated account managers.

Most recently, TFT started offering their products online for purchase by individual customers. TFT offers to ship its tools free of charge to customer home or a job site. Same day shipping is guaranteed on e-commerce orders placed before noon. This service is currently available to customers located within 60 miles of TFT retail locations as the orders are filled from store inventory.

TFT current supply chain operates as follows:

The product is manufactured in Germany by a subsidiary of Tools for Trade. The German subsidiary ships in FCL to Canada. TFT has a cross dock facility in Halifax (operated by a small local 3PL) where the ocean containers are unloaded, and orders are processed for distribution. Shipments destined for Western Canada are loaded onto 53" rail containers while orders for Ontario stores are shipped by truck. Upon arriving to TFT distribution center in Calgary the rail containers are de-stuffed and inventory is either put away into storage or cross docked again to be shipped to stores on outbound trucks. The distribution center is capable of processing e-commerce orders from customers; however, the management feels it is still cheaper to ship from stores versus a centralized location. TFT manages its transportation in-house and has agreements with a number of service providers to ensure its transportation needs are met.

Based on research and analysis, TFT has determined that there is an opportunity to grow the business in Ontario, Quebec, and the northern United States. TFT Tools plans to open 30 franchise stores in Quebec and 60 franchise stores (total) in Michigan, Ohio, Pennsylvania, and New York. TFT also plans to double their industrial customer base and offer e-commerce options for individual customers in the new regions. As TFT expands their operations to accommodate the potential sales growth in Canada and the US, the company must analyze the options and make recommendations based on that analysis. There are four options available to TFT for a new distribution center:

Option # 1: set up a private distribution center in Ontario

Option # 2: Hire a 3PL in Ontario to handle warehousing and transportation to customers

Option # 3: set up a private distribution center in Quebec

Option # 4: Hire a 3PL in Quebec to handle warehousing and transportation to customers

Note: the option chosen would serve Ontario, Quebec, and the US.

To support this expansion a number of challenges need to be addressed. TFT has hired your consulting firm to review the company's supply chain and strategies.

With TFT's expansion, management has recognized that the current performance measurements must be completely overhauled. Discuss steps you would take to assess the performance metrics the company should be measuring and what performance metrics should be used by TFT for its distribution centers. Be sure to explain what the chosen metrics measure and how measuring them will help the company during its expansion.