CASE STUDY

Naperville Hardware Distribution

Matt Weber and Quinn Domyancic, CEO and COO respectively of Naperville Hardware Distributors (NHD), were frustrated with their fourth quarter financial results. At the beginning of the quarter they had been enthusiastic about the profit picture for the company. The economy had been in an economic slump for several years, but the first quarter results of this year had shown a positive upturn in sales. The second and third quarter results were even better. Matt and Quinn had been almost exuberant even though profits had not shown much improvement. They both felt the profits in the fourth quarter would improve significantly because they had carryover expenses from the previous period, which they covered with revenue generated during the second and third quarters. While their net profits had again improved in the fourth quarter, the results were not what they expected.

NHD purchased the various hardware and plumbing products that they distributed from several manufactures located in Indiana, Illinois, and Wisconsin. They purchased in truckload quantities and had the items moved to a warehouse facility that they maintained in Naperville. They also operated a store that was contiguous to the warehouse plumbing contractors as well as some retail customers who did their own remodeling and repairs. NHD would make deliveries to customers in the greater Chicago area, especially builders and plumbing contractors.

Matt and Quinn asked their CFO, Carl Weber, do a “deep dive” on their costs for the last three years. Carl also did some benchmarking for them. Carl came to the conclusion that NHD was spending too much money on transportation and related distribution service. NHD was currently utilizing a third party logistics services company, LMZ for transportation (inbound and outbound). Carl recommended that they “in-source” all the transportation services.

Matt and Zach were surprised by Carl’s conclusion about the outsourcing of their transportation services because they had been dealing with LMZ for about 10 years. Private transportation service and order fulfillment were not among their core competencies. They had some reservations. Carl pointed out that they had options that they could consider including leasing equipment and drivers.

CASE QUESTION

1. Matt and Quinn have hired you as a summer intern to evaluate their options and requested you to write a short report presenting the opportunities and challenges they would face in pursing Carl’s recommendation. They also asked you to make your own recommendation based upon your analysis.