La Bamba Bakeries (LBB) traces their history back to the early 1990s, when Richardo La Bamba started selling homemade tortillas, sweet buns, muffins, and bagels mostly to Mexican immigrants in San Diego, California. As LBBs business grew rapidly, it acquired other local ethnic bakeries and has recently emerged as one of the largest family-owned bakeries in the United States, with annual net sales of $2.2 billion and a 17% share of the U.S. bakery market. In addition, LBB is a major producer of retail-branded pie crusts, pancake mixes, pizza crusts, brownies, croissants, and sweet desserts. LBB also produces custom-baked products for other marketers of branded food products. With a slogan of Nobody does better than La Bamba and its strong commitment to fresh-baked foods at a great value, LBBs business quadrupled in size over the last two decades, enabling it to deliver on its mission of serving America every meal, every day. One of secrets behind its success may be LBBs direct store door (DSD) delivery practice. LBB distributes its branded bakery products through approximately 12,000 sales routes throughout the U.S. using its DSD distribution system. With this DSD distribution system, LBB delivers its products to individual convenience stores, grocery chain stores, and supermarkets directly via its suppliers or the suppliers contracted carriers, such as FedEx and UPS. In many cases, DSD also includes stocking and appearance on retailer shelves. To increase DSD efficiency, LBB owns and operates two DSD distribution centers, and its sales employees (dubbed route professionals) visit retail stores on average three times each week. During the visit, these employees review the retailers on-hand inventory, help the retailer restock shelves, and ensure that the assigned shelf space generates sales revenue and profits sufficient enough for the retailer to allocate that much space to the product, while ensuring the correct inventory counts, proper arrangement, and free-standing display of LBBs products on store shelves. They also determine the product to be delivered to the retail store at a future time and communicate the future order to LBBs suppliers fulfillment center. This practice helps LBB with a high level of control over the stock level, future orders, and in-store presentation of its products. In particular, in-store presentations are important because LBB believes that purchases of bakery products are often impulse driven. Although the aforementioned process may sound simple, there can be complications. To elaborate, LBBs DSD business model employs a so-called guaranteed sale program that does not require an individual retail store to carry any of LBBs products but rather to simply provide in-store display space to share the sales profits. In other words, LBB provides a complete turnkey merchandising solution by taking care of marketing, in-store display, logistics, and inventory control. As such, the retail store never has to touch LBBs products and worry about selling them. LBB is primarily responsible for rotating its products quickly if they are not selling and replacing them with newer items. If the product does not sell, LBB is not making money. Also, LBB manages its outbound logistics through a two-tier process, where product is transferred by truck from its two distribution centers, in Indianapolis, Indiana and Las Vegas, Nevada, to nearly 175 self-service warehouses, which in turn serve individual territories managed by route professionals. Each of LBBs route professionals is responsible for servicing the retail stores in his or her territory and creating solutions for optimal delivery routing and scheduling to minimize transportation costs. Up until today, LBB has been using a third-party logistics provider (3PL) solution, but has experienced some delivery problems (e.g., missed time windows, shipping errors) because the 3PLs software was unable to adapt to the variables and scope of its increasingly complicated business practices. As an alternative, LBB considers physically delivering its products to the store by themselves, pulling pre-ordered products from its trucks and then participating in the delivery check process. This alternative may help LBB reduce fulfillment error, estimate its actual transportation costs more accurately, and figure out how many stops are being made per mile and how much time is being spent serving its customers. However, this alternative is likely to necessitate costly and time-consuming peddle runs (truck routes with frequent delivery stops) due to not knowing the exact volume of potential sales prior to delivery. To make matters more complicated, some large mass-merchant customers such as Walmart want to handle their own inbound transportation by themselves and thus pose difficulty creating economies of scale for LBBs own delivery option. Other chain stores also want LBB to ship products to their distribution centers directly and have their own people stock inventories, instead of leaving restocking to LBBs run professionals. On the other hand, most of LBBs smaller, independent customers are still happy with the LBBs DSD system, including a vendor managed inventory (VMI) approach, which takes the huge managerial/financial burden off of them (i.e., customers). Despite the aforementioned complications, the DSD system is the wave of the future for food retailing. In todays food retail environment, with an increasing number of product choices and the inherent difficulty in managing store-specific assortments, DSD offers a unique opportunity for a retailer to deliver to grocery shoppers what is needed at the shelf where it counts most, when it is needed, on an individual store basis. Thus, DSD can build shopper loyalty, power sales growth, and improve cash flow. Given the needed collaboration between the supplier (e.g., LBB) and the retailer, DSDs success hinges on the supplier-retailer relationship and effective communication between the supplier and the retailer. Such communication, in turn, requires the use of wireless, real-time information and communication technology (ICT) such as DEX (Direct Exchange) EDI (Electronic Data Interchange), which not only can improve the visibility of product flows to retail stores, but can also reduce the waiting time and check-in process time of the delivery drivers. This technology should also immediately identify any order discrepancies in terms of item, price, and quantity, while allowing the retailer to make automated payments. Adoption of this technology, however, can create additional financial strain for LBB in the short run. Another challenge stems from the customers POS (point-of-sales) systems, which often transmit inaccurate demand information to LBBs mobile computer network. For example, LBBs route professionals have observed retail store cashiers scanning one bag for several different kinds of bakery products that are the same price (e.g., hotdog buns, hamburger buns, cinnamon buns, and cheese buns). This practice hurts LBBs inventory count in the computer because the sales record might show eight hotdog buns sold when the real sale was for two hotdog buns, two hamburger buns, two cinnamon buns, and two cheese buns. This means that the LBBs retail stores sales records do not match LBBs. It also means restocking is based on the misleading information if that retail store brought in LBB products through its own distribution network. Relying on this flawed information and the subsequently poor demand planning can create stockouts and overages/excess inventorythat is, none of one type of product and too much of another. Given the various challenges just described, LBBs management is curious to know how well its current DSD system is doing and how much it contributes to the efficiency and effectiveness of its supply chain operations. To put it simply, LBB management would like to know how good they are in getting their information correctly and quickly, how accurate they are in making demand forecasts, and how fast they are making in their store deliveries. Without knowing how good LBBs current practice is, LBB management cannot figure out how competitive their company is and what it would take for them to become the leading company in the bakery industry. To further enhance its supply chain efficiency, LBB has begun to explore the possibility of downsizing plant production capacity, reducing overhead expenditures, and shrinking its sales force/route professionals. LBB also intends to continue to increase the efficiency and effectiveness of its supply chain operations by reducing overall logistics costs. For example, LBB plans to reduce transportation costs by handling its own outbound deliveries, further automating its transactions and payments, and upgrading its advanced ICT (such as electronic ordering systems and forecasting systems). Key Discussion Questions 1. How can you evaluate the efficiency and effectiveness of the LBBs DSD distribution system? Why do you think the DSD distribution system works well for LBB? 2. What can be the key performance indicators (KPIs) in the bakery industry? (Be as specific as possible.) 3. What can be the right supply chain performance measurement tool for LBB and its supply chain partners (e.g., retailers)? (Be as specific as possible and explain why it is appropriate.) 4. What may be the most important challenges of developing LBBs supply chain performance metrics? (List at least three potential challenges and explain how to deal with these challenges.) 5. From the strategic perspective, what may be the best way to sustain LBBs competitive edge against its rivals?