Kyle Anderson, president of Kitchen Queen Industries (KQI) is reading the latest financial report. As he reviews this information, Anderson recalls the company's beginning days and the struggle to get retailers to stock the company's line of Kitchen Accessories, Tiles, and Appliance fixtures. Today, the problem is quite different. The company is straining to produce enough products to meet store demand. KQI manufactures a variety of Kitchen accessories, including Appliances, Tiles, Fixtures, and other related goods. The products are made of highly advance-resistant molded plastic and come in a variety of up to date designs and colors. The plastic construction permits KQI to produce a high-quality kitchen accessory at a good price. In the late 2000s, Anderson focused the company's marketing attention on the large home center chain stores: Lowe's, Home Depot, Home Hardware, Canadian Tire, and their smaller competitors. Today, more than 80% of KQI sales are to these retail chains, and they account for 95% of its growth. Without these key customers, KQI would still be a small, struggling manufacturer of Kitchen items. Anderson's pleasant memories quickly fade to the realities of dealing with these large chain retailers. In the past 8 years, KQI has been required to comply with the customers' RFID & ERP initiatives, provide advanced shipping notifications (ASN), and improve inventory visibility through multiple platforms. The latest request from one of the smaller chain stores is for KQI to reduce cycle time by shipping orders directly to the stores. Currently, KQI national DC processes and ships a weekly order for each of the chain store's three regional DCs (RDCs) via national truckload carriers. Product is then allocated by the RDCs to individual stores and delivered by their private fleet. Under the proposed arrangement, each store will be ordering separately, and KQI is to process the order and deliver it within a business week. Harley Fransisco, director of Warehouse & Logistics, reviewed the request and delivered some sobering news to Anderson. He indicated that order processing costs and freight costs would certainly increase. His team would now have to process smaller, case-quantity orders for each store versus pallet-quantity orders from the RDCs. Also, KQI would have to use more costly lessthan-truckload (LTL) service and deliver all the way to the stores. Anderson didn't relish the thought of spending more money on order fulfillment as the customer wasn't huge and had no interest in paying more for the product. He was also worried that other retailers might make similar requests. So Anderson asked Fransisco to develop a plan that would satisfy customers without cutting into KQI margins too heavily.

Fransisco came back with the concept of establishing a 4-facility RDC network for KQI. The DCs would be in high-demand areas within each region in Canada. He touted the network's ability to process orders faster and deliver product cheaper than the current KQI facility. The facilities would be able to handle case picking, pallet cross-docking, and some value-added services. Fransisco went on to say that each RDC would maintain only a minimal level of safety stock (SS) and that the company's overall inventory would decrease. Anderson is skeptical of this plan. He feels that it would increase capital expenses, inventory levels, and transportation costs. He is not even certain it would meet the week delivery time requirements. QUESTIONS:

1) ANALYZE THE LOGISTICS AND COST CONTRAINTS IMPOSED ON KQI BY THE CHAIN STORES REQUEST

2) WHAT IS YOUR OPINION OF HARLEY FRANSISCO PORPOSAL FOR ESTABLISHING A SERIES OF COMPANY-OWNED RDC

3) IF KQI MOVE FORWARD WITH THE RDC PLAN, WHAT FACILITY OWNERSHIP STRUCTURE DO YOU RECOMMEND? WHY?

4) DEVELOP A PROCESS MAP (PPT or WORD IS FINE) DEPECTING THE PRODUCT AND INFORMATION FLOWS IN FRANSISCO'S PROPOSAL.