Warehousing Case

John Vance, president of Vanity Products (VP), is reading the latest financial results reported in the company newsletter. Early on it was struggle to get retailers to stock his line of bathroom vanities, mirrors, and light fixtures. Today the company is straining to produce enough product to meet retailer demand.

In the mid-2000's John focused the company's marketing attention on the large home center stores: Home Depot, Lowe's, Walmart, etc. Today more than 80% of VP's sales are to these retail chains, and they account for 95% of the growth. Without these chains, VP would still be a small, struggling manufacturer.

Dealing with these large chain retailers is not easy. In the past two years, VP has been required to install special software that permits the buyers to assess VP's inventory data file to determine availability, to place orders, and to verify shipment status. One of the chains wants VP to reduce cycle times by shipping orders directly to the stores. John knows the others will soon require this as well.

Currently, VP receives an order that is a consolidation of store orders to be served from a chain distribution warehouse. The order is sent in truckload quantity to the distribution center warehouse, where the individual store order is broken out and sent to the store. Now, each store will be ordering separately, and VP is to deliver the order within five working days directly to the store.

Mary White, the manager of logistics, indicated that freight costs would certainly increase because VP would be shipping less than truckload quantities at higher freight rates. This higher freight rate could be offset with freight consolidation software that combines store shipments into truckload quantities. Prices of merchandise could not be increased due to competition.

However, the freight consolidation strategy would increase the shipment holding time prior to dispatch, thereby making it difficult for VP to meet the requirement that orders be delivered in five working days.

Mary White, the manager of logistics, indicated that freight costs would certainly increase because VP would be shipping less than truckload quantities at higher freight rates. This higher freight rate could be offset with freight consolidation software that combines store shipments into truckload quantities. Prices of merchandise could not be increased due to competition.

However, the freight consolidation strategy would increase the shipment holding time prior to dispatch, thereby making it difficult for VP to meet the requirement that orders be delivered in five working days.

Question 1. What do you think about the logistics service and cost constraints imposed on VP by the chain store's latest demand?