MGMT 6091- Operations Management Processes Winter 2020

Case Study 2: Shamim Beauty Supplies

Shamim Beauty Supplies Inc. is a mid-sized producer of natural skin care products that supplies the retailers in Ohio. Since its establishment in 2015, the company has enjoyed a steady growth and has successfully managed the flow of its product to the market. Last year the company developed and introduced a special facial soap called Naturolac that has been a major success. With the surging order for this and two other products, the company expanded their production and opened a large plant that can produce 600 truckloads of this product annually. Realizing the potential for further market expansion, Javadi Ghori, the president of the company called his marketing, accounting and logistics managers into his office. While we all enjoy the exceptional success of these new products, I want you gentlemen to come up with a comprehensive plan to closely examine this expansion. We may have a bigger market down the road! What do you suggest we should do to stay ahead of the game? asked Javadi. George Green, the marketing manager of the company suggested targeting three major markets. The First market with a projected weekly demand of 8 truckload is located 160 km north and 200 km west of the plant. The second market demands of 10 truckload/week and is 150 km north and 180 km west of the plant. With a projected weekly demand of 12 truckload, the third market is located 140 km north and 160 km west of the plant. He predicted that the demand in these three markets will never be less than 8 truckload/week. Now that the market prospect is so great, what is the most cost effective way of taking our product to the market, asked Javadi. Joe Blow, the logistic manager suggested using a distribution center that can optimally feed these markets. He also started negotiating with a commercial builder who offered the following three build-to-suit facilities (varying in space and equipment) for long-term lease:

Warehouse Type	Annual Lease	Warehousing and Transportation (per truckload )
Type 1	$500,000	$9,000
Type 2	$900,000	$6,000
Type 3	$1,500,000	$4,000

Henry Dougal, the accounting manager of the company suggested using a third party logistic (3PL) firm for warehousing and distribution. He recommended Shamgol Logistics that offered complete service for up to 200 truckloads for flat annual cost of $3M and $500 discount on every truckload thereafter.

Taking all the above into consideration, Javadi called your group for consultation. He wonders where should the distribution center be located and which lease options Joe Blow has received can be selected. Being a very conservative manager, on the one hand, he wants to know that at the minimum predicted market demand what would be the most cost efficient suggestion (Joes or Henrys) and why. On the other hand, he wants to know if the market demand remains strong and keeps growing what would be the most optimal order volume and the most cost effective method for supplying the market. You have been advised that Javadi would most benefit from your consultations if your report is analytically and graphically presented. Your task is to prepare this report.