Kip Himmer, executive vice president of operations of Power Force Corporation (PFC), is feeling stressed out. The producer of power tools for the do-it-yourself market is experiencing higher fulllment costs as retailers change their buying patterns. They all seem to want smaller, more frequent shipments to a larger number of locations. And, the retailers' service expectations are on the rise. They are demanding advanced shipping notication, RFID tags on all products, and improved inventory visibility. Gone are the days when the retailers bought power tools by the truckload for delivery to a few regionally dispersed DCs. Instead, they are asking for smaller shipments to multiple DCs and direct delivery to stores. Some retailers are also inquiring about PFC's a bility t o d eliver o rders f or in dividual c ustomers dir ect t o t heir h omes. T his drop-shipping s trategy i s c ompletely n ew t o P FC a nd H immer w orries t hat i t c ould create major bottlenecks at the company's centralized DC that sits next to the factory in Louisville, Kentucky. And, all of these new requirements are accompanied by shorter order cycle time goals. Himmer feels that he is stuck between a rock and a hard place as the major home improvement c hain s tores (H ome D epot, L owe's, a nd True Value) a ccount f or m ore than 80 p ercent of PFC's sales. Although compliance is proving to be very expensive, PFC cannot afford to deny the requests. Doing so would have an unwelcome effect on revenues. After consulting with his fulllment team, Himmer has come to the conclusion that he has three reasonable options to address the emerging marketplace requirements: Option 1 - Upgrade the existing PFC DC in Kentucky to handle multiple order types and smaller shipments. Deploy warehouse automation to improve order fulllment speed and efficiency. Option 2 - Expand the PFC fulllment network. Add regional DCs in Nevada and New Jersey to the existing Kentucky DC. Modify operational processes and flows so that orders for DCs, stores, and individual consumers can be fullled. Option 3 - Outsource fulllment to a capable third party logistics company so that PFC can focus its efforts on quality production, accurate demand planning, and lean inventory management.

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

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

3. What types of functional and cost trade-offs will Himmer need to analyze?

4. Which distribution option do feel gives PFC the best opportunity for future success? Why?