CASE 11.1: BathKing Industries

Chip Norek, president of BathKing Industries (BKI), is reading the latest financial report. As he reviews this information, Norek recalls the company's early days and the struggle to get retailers to stock the company's line of bathroom vanities, mirrors, and light fixtures. Today, the problem is quite different. The company is straining to produce enough product to meet retailer demand.

BKI manufactures a variety of bathroom accessories, including vanities (medicine chests), mirrors, lighting fixtures, and shelving. The products are made of rust- and chip-resistant molded plastic and come in a variety of modern designs and colors. The plastic construction permits BKI to produce a high-quality bathroom accessory at an affordable price.

In the late 1990s, Norek focused the company's marketing attention on the large home center chain stores: Home Depot, Lowe's, and their smaller competitors. Today, more than 80 percent of BKI's sales are to these retail chains, and they account for 95 percent of its growth. Without these key customers, BKI would still be a small, struggling manufacturer.

Norek's pleasant memories quickly fade to the realities of dealing with these large chain retailers. In the past two years, BKI has been required to comply with the customers' RFID initiatives, provide advanced shipping notifications, and improve inventory visibility. The latest request from one of the smaller chain stores is for BKI to reduce cycle time by shipping orders directly to the stores.

Currently, BKI's 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 BKI is to process the order and deliver it within five working days.

Joe Rutner, director of logistics, reviewed the request and delivered some sobering news to Norek. 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, BKI would have to use more costly less-than-truckload service and deliver all the way to the stores.

Norek did not relish the thought of spending more money on order fulfillment as the customer was not huge and had no interest in paying more for the product. He was also worried that other retailers might make similar requests. So Norek asked Rutner to develop a plan that would satisfy customers without cutting into BKI's margins too heavily.

Rutner came back with the concept of establishing a six-facility RDC network for BKI. The DCs would be located in high-demand areas within each region. He touted the network's ability to process orders faster and deliver product cheaper than the current BKI facility. The facilities would be able to handle case picking, pallet cross-docking, and some value-added services. Rutner went on to say that each RDC would maintain only a minimal level of safety stock and that the company's overall inventory would decrease.

Norek 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 five-day delivery time requirements.

Answer the four case questions below - Upload to appropriate drop-box by Sunday midnight

1. Analyze the logistics service and cost constraints imposed on BKI by the chain store's request.

2. What is your opinion of Joe Rutner's proposal for establishing a series of company-owned RDCs?

3. If BKI moves forward with the RDC plan, what facility ownership structure do you recommend? Why?

4. Develop a process map depicting the product and information flows in Rutner's proposal.