Please do a full financial analysis. Calculate inventory holding costs and transportation costs, etc. And lay out a good course of action$/$implementation plan with possible solutions. Please and thank you.

Penner Medical Products

Neil Bennett, warehouse manager at Penner Medical Products $($Penner$),$ in Rockford, Illinois, was concerned about rising costs and delays associated with shipments arriving from an important Canadian supplier. Ken McCallum, the general manager, had asked Neil to look into the situation and get back to him with recommendations. It was Monday, April $14,$ and Neil knew that Ken expected to see his plan by the end of the week.

PENNER

Penner was a medical supplies distributor and retailer, supplying small and medium$-$sized medical practices for more than $50$ years. Company sales were $$30$ million and Penner employed approximately $120$ people. Management expected a $10$ percent increase in sales over the following five years. Penner sold a wide range of products, such as blood pressure gauges, tongue depressors, scalpels, and specialized furniture. Customers could purchase products either through Penner$$s five retail locations, all of them within a $200-$mile radius of Rockford, or order directly from its central warehouse. The company took orders from customers either over the phone or through its website.

page $260$

Although Penner was a family$-$owned business, retirement of key family members resulted in the hiring of several professional managers to run the company. Ken McCallum had been with the company for less than one year and was anxious to exploit opportunities to improve profitability.

Penner$$s main warehouse was a $30,000-$square$-$foot building, normally filled with merchandise in excess of $$2$ million. The warehouse was staffed by a manager, two receivers, two drivers for local deliveries to customers, two shippers, and two stock pickers, one of whom was also occasionally asked to drive the company$$s two$-$ton truck, the biggest delivery vehicle available. Warehouse workers were paid an average of $$15$ per hour.

Neil Bennett started with Penner as a stock picker and was able to progress though the organization as a result of his effort and dedication. He was promoted to warehouse manager eight months earlier.

STINSON DISTRIBUTION COMPANY

Rising costs and missed delivery dates from Stinson Distribution Company $($Stinson$),$ an important supplier in Ontario, Canada, had been a concern for some time. A medium$-$sized company, Stinson had a long$-$term relationship with Penner, supplying a wide variety of specialized equipment for medical offices. Stinson produced high$-$quality products and was Penner$$s only supplier of this equipment.

Missed delivery dates and incomplete orders from Stinson were resulting in customer complaints and lost sales. Furthermore, transportation costs were well over budget and senior management viewed inventory levels as excessive. The controller indicated to Neil that inventory holding costs were $15$ percent.

Two days per week, Penner$$s two$-$ton truck was sent to Stinson, traveling across the border at Detroit. Under ideal conditions, the one$-$way trip took $9$ to $10$ hours, and the truck, although empty in the first leg of the trip, was typically fully loaded with approximately $$15,000$ in goods on its way back to Rockford. The controller indicated that the cost of operating the two$-$ton truck was $$55$ per hour, including fuel, insurance, and administrative overhead. Neil observed that fuel costs had increased dramatically lately. He had tried to share the trips to Ontario with other local businesses to cut down transportation costs, but such efforts had been sporadic.

Concerns regarding security since $9/11$ had resulted in delays at the Detroit border crossing, extending shipping times and costs for Penner. The duration and timing of delays at the border were highly variable and could last anywhere from $30$ minutes to several hours. Furthermore, incomplete paperwork could add to these problems, since customs officials had become very thorough when reviewing documentation. Neil estimated that approximately $25$ percent of the goods from Stinson were delayed as a result of paperwork problems.

The two$-$ton truck was also in demand to supply materials to Penner$$s customers, making scheduling deliveries increasingly difficult. Neil had recently resorted to using United Parcel Service $($UPS$)$ to handle rush orders from Stinson, with an appreciable cost premium. He observed that: $$At least UPS never messes up the paperwork and gets the product here on time.$$ Penner was also currently paying $$1,000$ per month to rent space at a warehouse in Windsor used to prepare shipments to cross the border.

EVALUATING OPPORTUNITIES

Neil recognized that his meeting with Ken McCallum was still five days away but wanted to get started working on the problem right away. Ken had indicated, $$This problem is costing us a lot of money every day we let it continue. I want a plan in place at the end of the week that will convince me that the problem is going to get fixed quickly.$$